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Why Is JP Morgan’s Crypto Asset So Controversial?

02/15/19 10:36 PM 2019-02-17 16:06:27
Just days ago, the broader crypto community was shocked as JP Morgan Chase, one of the world's largest financial institutions, revealed that it would be launching its own digital asset. While some arg

Just days ago, the broader crypto community was shocked as JP Morgan Chase, one of the world’s largest financial institutions, revealed that it would be launching its own digital asset. While some argue that this effective seal of approval from Wall Street should have Bitcoin investors enthused, many have (not so) politely begged to differ.

Meet JPM Coin: The World’s First Wall Street Crypto

According to a comment from Umar Farooq, the Wall Street bank’s blockchain division lead, the so-called “JP Coin” will be backed by physical U.S. dollars and will first be based on Quorum, JP Morgan’s private Ethereum-based chain.

Eventually, the asset will go multi-chain, with interoperability solutions allowing for JPM Coin to be transacted in different ecosystems. Farooq remarked that his team intends the venture to eventually be a multi-purpose asset for the bank’s operations, whereas “anything, where you have a distributed ledger, [that] involves corporations and institutions” will use the stablecoin. For now, however, the JP Morgan executive made it clear that the newfangled offering is intended to bolster the company’s internal, yet international corporate transactions.

Farooq added that a “tiny fraction” of the institution’s daily corporate transactions, which purportedly amount to a nominal value of $6 trillion, would be made through JPM Coin. Yet, he didn’t explain what the fraction would equate to. But as it stands, it is unlikely that the bank is poised to transact billions on their nascent centralized blockchain.

Now that you know more about the newfangled offering, you might be wondering why it’s so controversial.

Bitcoin Community Erupts

Well, it’s quite simple.

Ikigai chief investment officer Travis Kling put it best. In a comment conveyed to Bloomberg, Kling, an anti-establishment figure that hails from Steven Cohen’s Point72, remarked that JPM Coin will be much more like “a Google Sheet than Bitcoin.” In other words, it’s a centralized asset will little-to-zero transparency. Tom Shaughnessy, the principal analyst at Bitcoin-centric research unit, Delphi Digital, echoed this sentiment.

Nathaniel Popper, the New York Times’ crypto-centric reporter, explained that while JPM Coin somewhat resembles other cryptocurrencies backed by U.S. dollars in circulation, it is “less useful,” as it cannot move out of JP Morgan’s chambers. He even jabbed at the bank itself, asking what disallowed the company from using a traditional medium of exchange.

Adam Draper, the managing partner of Boost Ventures, took some time to poke fun at JP Morgan chief executive, the illustrious Jamie Dimon, for apparent hypocrisy. Draper noted that in 2017, amid Bitcoin’s most recent come-up, Dimon quipped to international media that Bitcoin is much like a “fraud,” claiming that the asset has no inherent value. But now, in an evident about-face, the company launched its own crypto asset.

Even Ripple Labs chief executive Brad Garlinghouse had some choice words for the crypto offering. In a Twitter comment that garnered some semblance of support of both the XRP and Bitcoin community, the fintech guru explained that JP Morgan’s sudden launch of a digital asset is like launching “AOL after Netscape’s IPO.” This is, of course, in reference to the earliest Internet browsers at the commencement of the first notable Dotcom boom and bust cycle.

Although there are evident issues with the centralized nature of this asset, some believe that there are some silver linings. Coinbase alumni member Linda Xie, who co-founded Scalar Capital, recently remarked that she’s “actually excited” about JPM Coin. Xie explained that due to JP Morgan’s newest venture, an unnamed university endowment was enticed to learn more about Bitcoin, cryptocurrencies, and related technologies.

Yet, this doesn’t discount the fact that from a fundamental view, the Quorum-based crypto asset is unlikely to ever be as decentralized as Bitcoin, Etherueum, and the like, if at all. But will this characteristic (or lack thereof) stop JPM Coin from garnering traction on Wall Street and in the corporate world? No, likely not.

Title Image Courtesy of Matthew Foulds on Unsplash

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