JPMorgan Chase CEO Jamie Dimon has finally made a public move in the cryptocurrency arena. After years of bashing bitcoin, and at one time even mocking his own daughter for investing in it, we learned today that he had a master plan all along.
In a report published by CNBC, JPMorgan’s head of blockchain revealed plans for JPM Coin, a cryptocurrency pegged to U.S. dollars stored in JPMorgan Chase accounts. The cryptocurrency will initially be used internally between JPMorgan Chase’s wholesale business clients as a faster way to move funds that might otherwise rely on the traditional Swift interbank messaging system.
But the $339 billion bank has much more going on behind the scenes that relies on both cryptocurrency and other applications of the underlying Quorum blockchain the bank helped develop.
“Ultimately, we believe that JPM Coin can yield significant benefits for blockchain applications by reducing clients’ counterparty and settlement risk, decreasing capital requirements and enabling instant value transfer,” JPMorgan Chase said in a statement published today.
JPMorgan Chase’s history with cryptocurrency has largely been dictated by Dimon, who has alternately bashed bitcoin, regretted bashing bitcoin, made fun of his daughter for thinking she was a “genius” for investing in bitcoin and expressed regret for having ever mentioned bitcoin.
Dimon has seen two possible futures for bitcoin and other cryptocurrencies. Either they fail or they succeed and get banned by governments. JPM Coin appears to be play to the latter future, in which only certain cryptocurrencies would be sanctioned. The tokens will be issued using Quorum but will eventually be exchangeable on most blockchains.
JPM Coin is the latest, and most high-profile, launch of what are called stablecoins, which leverage the speed of using a shared, encrypted ledger but sidestep undesirable price fluctuations by being pegged to a relatively stable currency like the U.S. dollar. While CNBC characterized the cryptocurrency as the first to be issued by a major U.S. bank, banks have participated in the launch of other prominent stablecoins, including the Gemini Dollar issued by Tyler and Cameron Winklevoss with banking support from Northern Trust in Illinois, and USDC, jointly issued by Circle and Coinbase with banking support from Silvergate Bank and US Bancorp Asset Management.
As far back as September 2015, a consortium of banks led by Switzerland’s UBS paved the way Dimon is following. The group of banks has been experimenting with what they call the Utility Settlement Coin, designed to be a bridge of sorts between truly decentralized cryptocurrencies and central banks. Even central banks have begun experiments, with the Monetary Authority of Singapore largely leading the way, followed by the Federal Reserve Bank of Philadelphia and Sveriges Riksbank, Sweden’s central bank.
In the run-up to today’s news, JPMorgan Chase had been discreetly working with Nivaura, a cryptocurrency startup that aims to use the bitcoin and ethereum blockchains to issue more complicated financial instruments such as bonds denominated in ether. After naming Nivaura to its in-residence program, JPMorgan was in the room when Nivaura issued its first ether bond and provided guidance on how to ensure its success.
Even as Dimon has bashed bitcoin—and had his team discreetly study it—he’s been among the most high-profile proponents of blockchain, the technology that allows bitcoin to exist. As far back as 2015 JP Morgan joined the distributed ledger consortium R3 along with Barclays and other global banks. But two years later JP Morgan Chase left the group in a messy breakup, leading to speculation that the company’s executives felt that the potential for blockchain to level the playing field threatened their position as top dogs of global banking.
R3 went on to develop Corda, a distributed ledger inspired by the publicly available bitcoin blockchain, and JPMorgan Chase launched Quorum, inspired by the publicly available ethereum blockchain. While both organizations eventually gave away the underlying source code to the open-source community, meaning anyone can build with it, the platforms were designed to let developers create permissioned distributed ledgers that banks could grant access to as they deemed fit. Regulated financial institutions would be able enjoy many of the benefits of using a shared ledger while also ensuring they were compliant with privacy considerations.
Initially, R3 and JPMorgan Chase seemed shy about the idea that their platforms could be used to tokenize assets. Facing regulatory uncertainty and even potential hits to their reputation for being caught on the wrong side of a cryptocurrency trend, they focused on non-crypto-asset applications of blockchain. Then, last year, Tradewind Markets revealed that $4 million in gold was “deposited” by gold production firm Goldcorp to its blockchain using R3’s Corda and was used to issue gold-backed assets. In June a group of banks, including the Royal Bank of Scotland, revealed that it was working to tokenize cash securities and other assets.
“We view today’s announcement as validation of the strategy we’ve been taking for the past year,” says Todd McDonald, an R3 cofounder. “It validates the demand in the market: tokenization that targets the capital markets class.”
After establishing its leadership by launching its own an open-source blockchain code base, JPMorgan Chase cofounded a consortium that’s similar to R3 but aimed specifically at supporting development of the ethereum blockchain. While the consortium, called the Enterprise Ethereum Alliance, is officially just a standards body designed to ensure that enterprise-grade ethereum applications interoperate, Quorum became its de facto official platform.
In a final move to prepare Dimon to play his cryptocurrency hand, JPMorgan Chase has launched its own blockchain consortium, called the Interbank Information Network (IIN), with a mission that sounds very similar to interbank messaging platform Swift, which helps most banks move money. In fact, JPM Coin is a shot across the bow of Swift and startup competitors like Ripple. Even R3 revealed earlier this month it had partnered with Swift to help integrate the network with Corda. If banks start issuing their own crypto, interoperable with any blockchain, Swift might truly become unnecessary.
In April 2018, however, JPMorgan Chase suffered a notable loss when Amber Baldet, its visionary blockchain leader, branched out on her own. While JP Morgan Chase and R3 have been racing against each other behind the scenes to turn their platforms into industry standards, Baldet has taken a more community-based approach. Her company, Clovyr, is working to find ways to use public blockchains in a way that meets enterprise demands.
“Clovyr provides tools that make it easier it easier to build systems that challenge business as usual,” says Baldet. “We’re changing how businesses connect to each other and the world’s data, and helping people at every technical experience level bring a whole new generation of apps to life.”