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JPMorgan to Launch JPM Coin

JPMorgan Chase & Co. has officially become the first U.S. bank to launch its own digital token representing a fiat currency. Per a press release and interview issued on Valentine's Day, the bank has announced the creation of JPM Coin, a blockchain-based technology which will facilitate the transfer of payments between institutional clients. The coin has important differences from preexisting cryptocurrencies like bitcoin, primarily because it is redeemable at a 1:1 ratio for fiat currency held by JPMorgan.

What is JPM Coin?

JPM Coin is essentially a tool to help with the instantaneous transferring of payments between some of JPMorgan's clients. In order for an exchange of money between client parties to take place over a blockchain ledger, a digital currency must be used to facilitate the transaction. JPM Coin is the tool which helps to complete that process in a more efficient manner than traditional settlements.

JPM Coin itself is not money in the traditional sense. Rather, it is a digital token which represents U.S. dollars which are held by JPMorgan Chase. It maintains a value equal to one USD. Assuming that JPMorgan Chase deems the initial launch of JPM Coin to be successful, the bank has indicated its plans to use JPM Coin for additional currencies as well in the future.

The process by which clients will utilize JPM Coin is relatively straightforward. First, a client deposits a sum in a particular account and receives corresponding JPM Coins. Next, these coins can be used to facilitate transactions across a blockchain network and with other JPMorgan clients. Finally, at any time, clients may redeem their JPM Coins with the bank to receive U.S. dollars.

While JPM Coin is similar to stablecoins like tether, it has some important differences. First, these coins are open access and available to the public, while JPM Coin is permissioned and available only to specified JPMorgan clients. In particular, those clients must be institutional customers of the bank. JPM Coin is designed to facilitate transfer of payments, while most stablecoins are seen as investment tools. Finally, while stablecoins in general vary with regard to transparency about collateral holdings, JPM Coin will always be redeemable in fiat currency held by JPMorgan.

What Does It Mean?

By getting involved in the digital currency space, JPMorgan has lent the stability and reputation of one of the largest banks in the world to an industry that has seen significant uncertainty in recent years. Further, as a nationally chartered bank, JPMorgan Chase is compliant with U.S. and international banking laws and regulations. Regulatory oversight has long been a point of contention within the cryptocurrency space. The backing of a major bank may entice some previously skeptical investors to begin to explore the digital currency space. It is important to note, however, that for the time being JPM Coin is a prototype only, and regulators have not yet weighed in on this venture.

What Comes Next?

As it currently stands, JPM Coin will be used to facilitate payments between institutional clients of JPMorgan Chase only. Over time, the bank intends to expand this program to include other currencies and, potentially, individual customers as well. As the first program of its type from a major U.S. bank, JPM Coin may help to usher in a new age of digital currency transaction settlement in the mainstream financial world. This is all in spite of strong remarks by the bank's CEO, Jamie Dimon, against bitcoin in the past.