Thoughts on JP Morgan’s Coin | Michel Rauchs | Blockchain Expo Global

By: Rebecca Clinton-Floyed

14, February, 2020


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About a month ago, a special announcement took the cryptocurrency community by storm: a large US bank is planning to launch a blockchain-based digital currency!

Countless news articles, blog posts, and Twitter threads have vigorously discussed the project dubbed JPM Coin since, meeting the news with either great excitement or general skepsis.

Now that the dust has settled a bit, I’ve decided to add my two satoshis and put the story into context.

Standard disclaimer: the views expressed are my own and do not necessarily reflect those of my employer. All conclusions are based on publicly available information as of early March 2019.

Tl;dr: JPM Coin is an internal accounting system for the settlement of institutional customer accounts. It’s not a cryptocurrency nor a stablecoin, and the effective use of “blockchain” beyond its catalyst role remains unclear to date. However, it represents a long-overdue efficiency improvement in cross-border payments that may trigger further advances in core banking infrastructure.


So, what happened?


On February 14 (a fitting date, indeed!), J.P. Morgan announced the creation of a “digital coin for payments”.

Now, it’s 2019 and there’s hardly a day that passes without some entity announcing the launch of a new token for [INSERT HERE].

Why the buzz, then?

Well, J.P. Morgan is a bank — and not just any bank. It’s the largest bank in the U.S. and the sixth-largest bank in the world by total assets. As a universal bank, it provides a plethora of financial services ranging from commercial and investment banking to securities services and asset management. Importantly in this context, its Treasury Services business processes around $5 trillion in payments for clients worldwide — on a daily basis.

Unsurprisingly, the press release generated massive headlines:

Fortune: J.P. Morgan Chase Becomes First U.S. Bank With a Cryptocurrency

Barron’s: JPMorgan Just Killed the Bitcoin Dream

These are bold claims. I will deconstruct both via the following FAQ (spoiler: I don’t think either claim is correct).



Photo by Etienne Martin on Unsplash

What is JPMCoin?


In J.P. Morgan’s own words, JPM Coin is

“A digital coin representing fiat currency [for payments] based on blockchain-based technology enabling the instantaneous transfer of payments between institutional accounts.”

Sounds fancy, doesn’t it?

However, once you dig a bit deeper, the glitter fades away and reveals a much more mundane arrangement.

First, it turns out that it’s a prototype that has been in development for nearly a year in response to client demand.

Second, the trial will be initially limited to a small number of J.P. Morgan’s institutional clients (i.e. other banks, broker dealers, and corporates), although there are plans to expand the pilot programme in the coming months.

Third, it’s unclear to what extent the project is “blockchain-based”, apart from the fact that the system is built on Quorum. [1] It’s important to understand that using a blockchain framework does not imply that the underlying network is decentralised nor distributed (more on this later).

So, after removing the common buzzwords and hyperbole, JPM Coin in its current state is simply a new accounting tool for the internal settlement of customer accounts. It’s a different way of doing internal accounting — a “limited enhancement to J.P. Morgan’s in-house payment rails”, as Frances Coppola puts it aptly.

So, is there a token?


Short answer: technically yes, conceptually no.

JPM Coin is a method of representing one ledger entry on another ledger, with both ledgers being managed by the same entity (i.e. J.P. Morgan). Technically speaking, one could say that tokens are immobilised on one system (recording bank deposits), and an equivalent amount of tokens is issued on another system (“blockchain”) until they are redeemed to the client’s account.

However, since the service is managed by J.P. Morgan and limited to a small number of its institutional clients, it’s equivalent to a bank deposit from a conceptual point of view: it’s simply a digital representation in a different internal system. [2]


Photo by rawpixel on Unsplash

Is it a cryptocurrency, a stablecoin, or both?


I see cryptocurrencies as tools for censorship resistance — whether that applies to payments (Bitcoin) or value transfer in general, the execution of shared business logic (Ethereum), or the secure storage and transfer of files (Filecoin, tbd).

The key point here is this: functional cryptocurrencies are designed to enable users to do things that others — generally public or private institutions, but also communities and individuals — wouldn’t let them do. This implies unrestricted access and permissionless usage.

JPM Coin has not been designed to meet the above. It will have baked-in KYC and AML, the option to freeze balances, and close accounts that are deemed suspicious. While JPM Coin may be a digital token, it certainly is not a cryptocurrency — and that’s fine! It just serves an entirely different value proposition than bitcoin, ether, monero & co, and as a result cannot be considered a direct competitor. [3]

You don’t have to take my word for this: even JPM’s Blockchain Lead liked a tweet saying that it’s not. While I don’t think there’s been intentional confusion at work, I agree with Jerry Brito from Coin Center that we should be careful with regards to how we use cryptocurrency to avoid the term losing its meaning — as has clearly been the case with “blockchain”.

Is JPM Coin a stablecoin, then?

In my opinion: currently no, but it might become a stablecoin in the future. True, it’s pegged to the US dollar since it’s fully backed by JPM deposits: a JPM Coin is a digital representation of USD. However, unlike other blockchain-based stablecoins, you cannot use it outside of JPM’s closed system, which is only reserved to a limited number of institutional clients.

Interestingly enough, this point of view is — once again — supported by JPM’s own blockchain team: in a recent interview with Yahoo!, Umar Farooq said that unlike other stablecoins such as USDC, JPM Coin can only be held or traded by JPM clients. This would of course change if at some point in the future, the system opened up in the future to other (non-client) institutions in order to enable non-intermediated transfer of value across organisational boundaries.

So, the verdict is the following: JPM Coin will never be a cryptocurrency, and, in its current form, is not a stablecoin either. At best, it can be described as an internal digital accounting token representing USD. Or, in the words of Jemima Kelly from the FT:

“[…] Some might argue JPM Coin already exists and that it’s just a JPM deposit by another name.”

Photo by Matias Misael on Unsplash

Does that mean it’s useless?


Not at all! When we take a step back and look beyond the “blockchain” and “cryptocurrency” context, it becomes apparent that JPM Coin represents a first step to tremendously improve efficiencies in global payments.

JPM Coin is a new in-house payment rail that allows institutional clients to easily move funds around different (international) accounts, 24/7 and in (near) real-time. This will remove a lot of friction (e.g. costs, delays, compliance requirements) that would otherwise occur if those payments had to first go through external systems like SWIFT and interbank settlement systems (e.g. Fedwire, Chaps, Target2).

Large clients can now benefit from JPM’s in-house payment rail for the real-time settlement of payments between themselves (and their overseas subsidiaries) without incurring the costs associated with the use of outside systems. In addition, this initiative aims at reducing customers’ counterparty and settlement risk, and may decrease capital requirements.

This is not a new phenomenon: many banks are exploring ways to provide settlement finality for customer payments. This is a fancy way of saying that banks are looking for ways to facilitate the maintenance of internal ledgers across different parts of the organisation. Frances Coppola rightly points out the absurdity of today’s payments landscape that requires bank customers to use external payment rails just to move money around their own organisations. JPM seems to have taken the lead here, and it is likely that other banks will follow.

What’s the “blockchain” link?


As we’ve already established, JPM Coin is built on Quorum, a permissioned version of Ethereum developed internally. That’s about all the information we know, which is arguably very little.

The current network configuration is unknown. For now, I would guess that it is composed of at best a handful of nodes controlled by JPM. Quorum uses Raft-based consensus, which is essentially equivalent to “proof-of-authority”. Not that it would matter too much, as the current network likely relies on a single record producer node. That’s not different from a distributed but centralised database.

Is that a bad thing? No — it’s actually how it’s supposed to be! JPM has a very specific use case, and chose the right technology and set-up to support that business case. There’s no point in having a complex multi-party consensus system for internal use.

So, if this system resembles more a traditional centralised database, is this a classic example of Blockchain-as-an-Excuse (BaaE)? [4] Possibly yes, at least initially.

Needless to say that the announcement has generated massive publicity all over the world, particularly as a result of the use of blockchain-related buzzwords. Again, in the words of Frances Coppola:

“It seems a bit sad that cash-strapped IT departments have to say “look, it’s blockchain” to persuade board directors to throw some money at settlement plumbing, always a pariah compared to fancy front-office systems. But from the point of view of J.P. Morgan’s customers, this is simply a long overdue improvement to the bank’s extremely expensive and very clunky cross-border payments systems.”

I don’t think this is a bad thing, though. As a former member of the JPM Blockchain Team notes, banking is moving very slowly, and “blockchain” can act as a catalyst to accelerate transformation and new developments. Yes, it does create additional confusion (“is it really using a blockchain?”), but hey — if it leads to real improvements that will significantly impact a considerable number of people, then it’s definitely worth it.

It’s also worth noting that JPM already operates another blockchain-based network deployed in production, the Interbank Information Network (IIN) that features the participation of over 175 financial institutions to facilitate information sharing between members. While it doesn’t seem like IIN and JPM Coin are currently related, it is not difficult to see how a global information sharing system between banks could be complementary to a global value transfer system.


Photo by Izuddin Helmi Adnan on Unsplash

What are the potential (long-term) implications?


For now, it’s about efficiency improvements and cost savings for large clients, which may indirectly extend to end customers as well. The interesting scenario, however, is the possibility of lifting access restrictions and open up the network to other banks and non-customers.

Now, it’s way too early to assess the exact implications, but the impact of JPM Coin could be far-reaching in the not-so-distant future.

Imagine that the system would gradually accommodate other financial institutions and turn into an alternative, interoperable banking network for the settlement of interbank payments. This would mean that the digital token JPM Coin could become an alternative (private) means of settlement, as a substitute – and thus direct competitor — to central bank reserves which are currently required to settle interbank payments.

If the system proved to be more efficient than traditional settlement, the demand for central bank reserves may shrink — and as result the influence of central banks and their ability to conduct monetary policy. Similarly, this could trigger other banks to issue their own, competing tokens based on the same unit of account. While commercial banks have always created money in the form of credit, these tokens would effectively become a new currency pegged to the US dollar — and we would effectively be back to the times of the free banking era!

Now we’re entering unknown territory. How would other banks react? And more importantly: how would central banks react? What would the impact be on global finance?

I don’t want to get into too much speculation here, as recent comments by JPM representatives made it clear that there won’t be “dramatic changes in the next 12 months” and that we’re talking about incremental/marginal improvements. Nevertheless, it’s useful to reason about what the future may hold, so you can expect a follow-up post from my side should things get serious.


Photo by Izuddin Helmi Adnan on Unsplash



JPM Coin issued a somewhat click-baity announcement to communicate the launch of a new internal payment rail reserved for institutional clients. JPM Coin in its current form is not a cryptocurrency nor a stablecoin. While entirely centralised, it facilitates the settlement of international payments between customers — a long-overdue efficiency improvement, which confirms my conviction that the largest contribution of cryptocurrencies and blockchains to date has been its role as a catalyst to upgrade existing infrastructure.

In the future, JPM Coin has the potential to form the basis of a new interbank settlement network, with a bank-issued digital dollar that may become an alternative to central bank reserves for the settlement of interbank payments. While this is largely speculation, it means there’s interesting times ahead!




[1] For those unfamiliar with Quorum: it’s a permissioned blockchain framework based on a fork of Ethereum’s Go client, developed internally by J.P. Morgan’s Blockchain Team and released under an open-source software license.

[2] Note that this may change in case the system becomes available to non-clients.

[3] Ripple’s XRP may be considered an exception to this, but then again I don’t consider it to be a cryptocurrency in the first place.

[4] Blockchain-as-an-Excuse (BaaE) describes the common practice of using the term “blockchain” for an otherwise unrelated project in order to (1) get C-level executives excited, (2) give them an opportunity to paint their company as forward-looking and innovative, and (3) provide engineers and IT people with a budget and resources to finally upgrade legacy infrastructure. In this context “blockchain” acts as a powerful catalyst and stimulus to incentivise the undertaking of long-overdue infrastructure upgrades to make them fit for purpose in the “digital age”.