What differentiates Bitcoin from JPM Coin?

Over the past months, big financial institutions and tech companies announced that they plan to launch their own digital currencies. These companies seem to have many of the preconditions to launch a successful project as they either have trillions of assets under management or can profit from billions of monthly active users. At the same time, public media started comparing those coins to Bitcoin. In the table below we provide a quick overview of the most important players that are about to enter the space of digital currencies.

Institution JP Morgan Mitsubishi Financial Group Facebook Telegram Kik
Industry Financial Services Financial Services Social Network Messenger Messenger
Coin JPM Coin not announced yet Facebook Coin Telegram Open Network (TON) Kin Coin
Current Phase Test Phase in development in development in development in development
AUM (in USD) 2.7 trillion 2.5 trillion
Monthly active Users 2.6 billion 200 million 53 million
Funds raised (in USD) none none expected to raise 1 billion almost 1.7 billion 218 million

It is also notable that Visa is currently hiring crypto and blockchain experts to evaluate potential blockchain or cryptocurrency use cases.

While we can understand why these players aim to get a foothold in this market, we believe it is important to point out the key differences between truly decentralized protocols like Bitcoin and centralized digital currencies like JPM Coin. Since most of the big player’s currencies are merely in development, we will focus on the key differences between Bitcoin and JPM Coin.

Bitcoin is a truly decentralized, permissionless, borderless and open cryptocurrency. Hence, there is neither a single individual nor a group of individuals deciding on who is allowed to participate in the network or what changes should be implemented. Moreover, the code is open-source and everyone is allowed to propose changes which will then be voted on by the miners who secure the network. Consequently, there is no trust required between the participants. This is essential for Bitcoin as the value of the network relies on its distinct properties. A good example of such a property is the hard-coded supply of Bitcoin. The code stipulates that there will never be more than 21 million coins in existence, resulting in a currency that is resistant to inflation over the long run. Increasing the supply would require the majority of the users to agree to this change which is very unlikely as this would not be in the interest of the users. Equally important, the decentralized structure makes Bitcoin censorship resistant, meaning that no one could harm the network – not even governments.

The current properties of Bitcoin make it a good store of value on the one hand, but on the other hand, high transaction fees and volatility make it less suitable as a means of payment or unit of account. This is where stable coins come into play.

Bitcoin JPM Coin
Blockchain Bitcoin Blockchain Quorum
Public / Private Public Private
Tradeable on Exchanges Yes No
Collateralized No Yes
Smart Contracts Not yet (but in development) Yes (Ethereum Fork)
Permission Unpermissioned Permissioned
Stability Unstable Stable
Inflation/deflation (Economic Model) Deflationary (long-term) Inflation of USD
Control Decentralized Centralized
Censorship Resistance yes no

JPM Coin is a digital currency that is constructed in a way that one coin will always represent the value of one US dollar. It was created specifically to be an internal payment tool, allowing easy cross-border transactions and administrative transfers. Technically, it is based on Quorum, an Ethereum spin-off. In contrast to Bitcoin, JPM Coin is private and potential users need the permission of JPM to use the coin. If they are allowed to use the coin, they give USD to JMP and then they get the same value in JPM Coins in return. Since the coin represents the value of the US dollar, JPM Coin obviously suffers from the same rate of inflation. Then again, due to the centralized architecture JPM Coins are easily censorable meaning that its no problem for the state to prohibit transactions for political or other reasons. While JPM Coin has many disadvantages compared to Bitcoin, it has to be noted that it also solves a lot of problems in the current financial system. The internet allowed us to send emails across the world within seconds but payments often take days to be processed and costs are disproportionate. Stable coins like the JPM Coin allow almost instant transfers at very low cost without the volatility of Bitcoin. Therefore they provide a very attractive alternative to the current interbank systems. However, if every big player develops its own digital currency we could be faced with interoperability problems like it is the case with current monies. This is where we see the major advantages of Facebook Coin. With 2.6 billion MOA on Facebook, Facebook Messenger, Whatsapp and Instagram the company is well positioned to attract a big if not most of the market share.

To conclude, we do believe that centralized digital currencies have a right to exist and can lead to more awareness and adoption. Also, they have a high potential to establish themselves as a means of payment for the reasons given above. However, Bitcoin is a completely different kind of currency due to its decentralized nature and therefore we see it as a far better store of value.

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2019-04-15T11:13:20+00:00