Wall Street involvement will transform the digital asset sector. Photo: iStock

Is JP Morgan really launching its own digital currency? Or is it actually launching a blockchain-based transfer platform that will go into direct competition with the Ripple’s global digital payment network?

An announcement by the Wall Street banking behemoth, made on Valentine’s Day no less, that it is planning to launch a digital asset “JPM Coin” set the fintech media abuzz with speculation. The news was especially intriguing because JP Morgan chairman and chief executive Jamie Dimon has in the past made no secret of his outright mistrust of Bitcoin.

“You can’t have a business where people can invent a currency out of thin air and think the people buying it are really smart,” said Dimon in September 2017. “It’s worse than tulip bulbs…” he said, referencing the 17th Century Dutch tulip mania price bubble. “It’s a fraud, OK?”

But last Friday, as  CNBN ran with a headline that claimed that “JP Morgan is rolling out the first US bank-backed cryptocurrency to transform payments business”, things seem to have changed. Or have they?

According to the bank, the JPM Coin is being launched to improve digital transaction speeds while also lowering processing costs. In the official announcement last week, JP Morgan’s digital treasury services and blockchain head, Umar Farooq, explained that when clients send money to each other over its blockchain network, JPM Coins will be transferred and instantaneously redeemed for the equivalent amount of US dollars.

However, Ripple already has a similar and proven solution, which it has been pitching to banks for at least five years. The San Francisco company says it already has over 200 banks and financial institutions on its RippleNet network of partners. So is JP Morgan doing nothing more than going into direct competition with them?

Key differences to Ripple’s xRapid

Well, when it comes to the detail, the two products are actually distinctly dissimilar. While JP Morgan’s coin will, in essence, do the same thing as Ripple’s xRapid system – which uses its own XRP as an intermediary coin instead of a digital dollar – there is a primary difference. XRP is volatile and subject to rapid changes in value while JPM Coin is a “stablecoin” that will be pegged to the dollar. Another difference is that Ripple works with multiple currencies and countries where the bank will only use US dollars and the service will only available to its institutional clients.

For the crypto sector, JP Morgan’s market entry has, once again, brought the centralization question to the fore. The JP Morgan token  is “centralized.” This means it is on a private network that is essentially controlled by its owners, as opposed to Bitcoin that is owned by no single entity so can be considered as a “decentralized” currency. For the crypto community, this difference is crucial and it means, classically, the JP Morgan is not an actual cryptocurrency. But that difference might be becoming less relevant. 

Ripple’s business has done well by targeting banks and persuading them they need RippleNet’s fast and low-cost digital transfer services.  JP Morgan new product could set a new precedent for banks to start developing their own products, using the Ripple model a framework. 

Some industry experts think the new JPM Coin could “obliterate” Ripple. “This is a huge slap in the face for Ripple,’’ Tom Shaughnessy, principal at New York-based Delphi Digital told Bloomberg. “Ripple’s target market is cross-border payments and remittances and now JP Morgan’s effort is a direct threat.’’

Ripple’s chief executive Brad Garlinghouse, unsurprisingly, downplayed the impact and tweeted that, “as predicted, banks are changing their tune on crypto. But this JPM project misses the point.” Garlinghouse has always dismissed what he calls “BankCoins” as “misguided” and argues that finance needs an”independent digital asset” to create a truly efficient global settlement system, which he, of course, says already exists with Ripple.

There’s no doubt Ripple has made huge inroads in challenging the 45-year-old SWIFT interbank messaging service that is run by the world’s leading banks and currently processes more than half of the world’s high-value cross-border transactions. But will it manage to survive direct competition from the King Pin of Wall Street?

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