Remember JPM Coin? Next Step Is Programmable Money, Bank Exec Says

Two years after JPMorgan grabbed headlines with plans for an in-house digital token, the global megabank is looking to fulfill one of the great promises of electronic currency: programmable money.

Formally launched in October, JPM Coin is, for now, more akin to JPMorgan’s corporate clients holding their U.S. dollar deposit accounts on a blockchain, said Umar Farooq, head of the bank’s Onyx suite of applications.

That naturally enables 24/7 money movement among those corporations. Overshadowed lately by the crypto bull market, JPM Coin runs in conjunction with the 400-bank Liink payment network and powers things like securities settlement (in repo trades) across JPMorgan’s client base.

But according to Farooq, it’s only the beginning. Aping dollar-pegged stablecoins, or emulating cryptocurrency generally, was never the plan for JPM Coin (which, to be clear, is not available to retail investors nor traded on any crypto exchange).

“We are getting into the programmability of JPM Coin,” he said in a recent interview. “Actually programming what money can do for you, whether it’s conditional payments, whether it’s things like tax assessments. That’s all very rule based and, in the past, you would have to send specific instructions to a bank like JPMorgan. We increasingly want you to be able to program these things, and actually tell the money what to do.”

That desire helps explain why JPMorgan chose to build its various blockchain projects on Ethereum (albeit a bespoke version of it) five years ago. Now the second-largest blockchain as measured by the market cap of its native token, ether, Ethereum was designed specifically to enable complex “if this, then that” programs (known as smart contracts) that were hard to do on Bitcoin, which was built for the straightforward task of transferring digital cash from A to B.

“When we looked at Ethereum versus other options, we were very attracted by the smart contract ability,” said Farooq. “The fact that you could do more things than just a uni-dimensional value transfer on that platform.”

Eye on DeFi

Ethereum also comes with the likely support of the largest developer ecosystem in blockchain. And it keeps the door ajar for a bank like JPMorgan when it comes to the rapidly-expanding public crypto arena.

The big story these days concerning Ethereum is the open, gatekeeper-free hotbed of pseudonymous trading and lending known as decentralized finance (DeFi).

Institutions are slowly but surely edging towards areas like DeFi, with banks such as Netherlands-based ING already talking about what can be learned from this new paradigm.

Fortunately for JPMorgan, Quorum, its permissioned version of Ethereum technology, means the bank remains close to the action; what Farooq calls a “front-row seat” when it comes to innovations happening in the public blockchain arena.

“We are keeping a very close eye on the DeFi evolution,” the JPMorgan blockchain chief said.

“Although it's very much in the public crypto sphere currently, there is clearly a future for DeFi as other assets start to get put on blockchains – whether they're permissioned or they're fully public, it remains to be seen,” Farooq added.

As well as the allure of DeFi, there are even some banks said to be eyeing the possibilities offered by proof-of-stake (PoS) participation on networks like Ethereum, an energy-efficient alternative to Bitcoin’s mining process, whereby one earns by having some skin in the game and validating transactions.

“When it comes to ETH 2.0 staking, that's going to be a very interesting development,” Farooq said. “I think that might open more doors for people to interact with the Ethereum ecosystem.”

ConsenSys deal

Farooq dismissed the notion of an unwavering “passionate link” between the bank and Ethereum. That said, support for Ethereum has existed from the very early days, Farooq added, such as from folks like JPM’s head of Quorum engineering, Samer Falah.

Indeed, JPMorgan’s relationship with Ethereum is long and varied. Formalized with the creation of the Enterprise Ethereum Alliance in 2017, the ties strengthened last year when JPMorgan handed the day-to-day running of Quorum over to ConsenSys, the Brooklyn, N.Y.-based software studio helmed by Ethereum co-founder Joe Lubin. JPMorgan also led a $65 million funding round in ConsenSys.

“We've known Joe [Lubin] for a long time,” said Farooq. “So our view was that being part of ConsenSys also keeps us close to Ethereum proper in terms of its evolution and gives us a bit of a front-row seat.”

It’s also found a good home for Quorum because JPMorgan is not a software company. The word on the street was that the day-to-day management of Quorum was becoming a headache for the bank.

“As long as it was a small thing that was kind of being done in a corner, that was fine,” Farooq said. “The moment it started scaling up, we would get calls from our largest clients saying, ‘We're going to build on Quorum, can you give us managed services support?’ That’s when we started to consider strategic options for Quorum to continue to grow and succeed outside of the bank.”