Three MIT students in their early 20s created a technology that could draft predictive responses to emails. In May 2018, they proceeded to raise funds for their startup – EasyEmail. Around the same time, Google held its annual conference in which it announced a feature similar to that of EasyEmail. The startup’s founder, Filip Twarowski, expressed his shock, fearing that competing with Google would scare off venture capitalists.
The history of entrepreneurship is full of stories in which more prominent corporations try to squash young companies by copying them. Or, they acquire them completely to eliminate a threat.
In the case of JP Morgan, it is the former.
Multinational banking giant JP Morgan took an idea made famous by Ripple Labs (and other public crypto projects) – that blockchain can conduct cross-border transactions more swiftly than traditional interbank settlement system SWIFT – and rebranded it. To that end, the firm replaced Ripple’s distributed ledger with an Ethereum-inspired Quorum blockchain and XRP token with its new stablecoin, JPM Coin.
In theory, JP Morgan’s JPM Coin – which probably shouldn’t even be called a cryptocurrency – combines the best of both mainstream finance and crypto world. The project borrows blockchain technology to conduct global transactions faster while protecting its users from volatility attached with cryptocurrencies like XRP. Because JPM Coin is transferrable between the accounts of JP Morgan’s clients, who would purchase and redeem them for the US dollars based on a 1:1 peg, the digital token appears more attractive than the volatile XRP.
“Exchanging value, such as money, between different parties over a blockchain requires a digital currency, so we created the JPM Coin,” JP Morgan wrote in its FAQ.
In short, a corporate giant imitated a young startup and managed to project its venture as better. Such situations have not played out well for young companies. But, according to Ripple CEO Brad Garlinghouse, their firm isn’t scared of squaring off against such Wall Street behemoths.
Garlinghouse said in a tweet that JP Morgan’s latest attempt to launch a cryptocurrency missed the point. The former Yahoo executive explained that the JPM Coin relies on a “closed network,” which had nothing innovative about it.
“As predicted, banks are changing their tune on crypto. But this JPM project misses the point – introducing a closed network today is like launching AOL after Netscape’s IPO,” Garlinghouse said in a tweet.
Garlinghouse directed followers to an article he penned on LinkedIn two years ago. The title read “The Case Against BankCoin .” It discusses how so-called “bank tokens” are no better than independent coins like XRP.
“We strongly believe banks need an independent digital asset to enable truly efficient settlement and we believe XRP is best positioned for that role,” Garlinghouse wrote. “It goes back to the fundamentals of what makes digital assets unique and special – they’re universal currencies, meaning anyone can use them as units of value anywhere in the world. That universality gives digital assets global reach and the ability to settle much faster than traditional assets.”
The situation leads to an important question: are XRP users on-and-off customers, speculators, or both? To explain further, an on-and-off user would purchase/sell XRP for what it does. She would buy the token only to conduct an online transaction cheaper and faster. And the receiver would also exchange the XRP for local currency the moment he receives it.
Meanwhile, a speculator would hold the XRP cryptocurrency with an aim to trade it for a higher value in the future. The same cannot be said about a bank coin like JPM Coin, whose only purpose is to settle transactions in real time.
JP Morgan could end up taking customers who primarily use XRP for remittance. Ripple, on the other hand, will need to set its priorities straight. A stablecoin to settle payments between different banks could be the right answer.
By the way, EasyEmail survived the Google competition.
Brad Garlinghouse Image from Christopher Michel/Flickr