Late last week, the New York Times reported that Facebook has been leading discussions with crypto exchanges about listing its own cryptocurrency. That news came a scant three weeks after
JPMorgan Chase, the $345 billion banking giant, announced the launch of its own crypto asset, JPM Coin, a stablecoin backed by the fiat reserves of the bank.
The response of the majority of the cryptocurrency community toward JPM Coin and Facebook Coin was negative to say the least. Critics point out that it’s difficult to justify JPM Coin as a proper cryptocurrency due to its centralized structure, and Facebook might be attempting to create a monopoly on money.
But I think the efforts of JPMorgan, Facebook, and other large institutions working with blockchain technology will definitely benefit the industry in the long run—if executed correctly.
Open-source development, transparency, and trustless operations, among other characteristics of Bitcoin, have been the core components of blockchain development for over a decade.
Hence, when a major bank comes out with a permissioned ledger, a centralized blockchain network, and a stablecoin built on top of it, the reaction of the cryptocurrency community cannot be anything but negative, simply because it goes against the philosophy of cryptocurrency.
But, in the eyes of an average investor in the financial sector, which the cryptocurrency sector ultimately will appeal to in the years to come as it grows in size, the involvement of a leading financial institution could improve the public image and the legitimacy of blockchain technology to new users and investors.
As Scalar Capital co-founder Linda Xie said: “I’m actually excited about JP Morgan’s coin because of the attention it brings to crypto. I presented to a university endowment board this morning on bitcoin/crypto and there was more interest in learning about it because of JP Morgan’s recent announcement. It’s a good start.”
The involvement of well-recognized institutions in blockchain and cryptocurrency development could lead investors who were not previously willing to engage in the crypto market to ponder the necessity of cryptocurrency in the digitization of payments and money.
Many regions, especially economies with strong fintech hubs in the likes of Japan, South Korea, Norway, China, and the U.K. are rapidly eliminating cash and establishing cashless societies.
In South Korea, for instance, hundreds of Starbucks stores officially stopped accepting cash since July 2018 to encourage mobile and card payments.
As the global market moves on from cash to digital alternatives, existing users of mobile payment and fintech applications will come across cryptocurrencies, and when they recognize some of the largest banks in the world are developing crypto assets, it may further solidify the necessity of cryptocurrencies in the digitization of money.
“Categorically dismissing JPM Coin and FB Coin is a failure to recognize that different implementations can coexist on the spectrum from centralized to decentralized. If executed correctly, this could remap the crypto ecosystem,” former Citi blockchain lead Ian lee said.
Several investors including Anthony Pompliano, the co-founder and partner at Morgan Creek Digital, believe that JP Morgan is “secretly building a central bank” and it may end up providing the bank with monopoly over money.
“JP Morgan isn’t building a centralized digital currency. They’re building a full-fledged central bank. And if we let them do this, the jokes on us,” Pompliano said.
But as long as the private blockchain network is rolled out in compliance with existing policies with the approval of the authorities, and the permissioned ledger will be limited to institutions, I don’t believe this is a near-term risk.
The threat of creating a monopoly on money is even more palpable for Facebook and its native coin. What if the company declines to integrate other crypto assets in its apps, such as WhatsApp, and decides its platform will solely utilise its own native cryptocurrency?
Ultimately, Facebook is a commercial business which prioritizes the interest of users and the demand from the market. If Facebook sees other cryptocurrencies growing to a point it can’t ignore, it’s unlikely the company would push for the dominance of its own token, at the risk of losing its own users.
Pompliano knows all too well that it took over 10 years for the first two institutional investors in the U.S. to invest in cryptocurrencies through Morgan Creek Digital’s crypto fund. It’s entirely possible that institutions were uncomfortable with the quality of custodial services that existed prior to 2019.
But, I think it’s more likely that the inflow of new capital is a result of institutions and accredited investors realizing that cryptocurrencies and blockchain technology are no longer just a fad.
The involvement of large-scale financial institutions, and even Facebook, ought to only fuel investor’s confidence that cryptocurrencies will become an established asset class in the long run.
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