The JP Morgan Cryptoasset – A Legal Update

JP Morgan, one of the largest investment banks in the United States has created its own cryptoasset.

Participants in the blockchain and cryptoasset community have criticised this news as Jamie Dimon, JP Morgan’s Chief Executive has criticised the cryptoasset, Bitcoin, quite heavily in the past.

It is important to note, however, that Dimon’s critique of Bitcoin was in relation to the value that investors and cryptoasset users have placed on it; he believes that as an asset, it does not have any fundamental value. This view is focused on the price and associated value of Bitcoin, not the concept of cryptoassets, tokenisation and blockchain technology.

The cryptoasset that JP Morgan has created is not one akin to Bitcoin or cryptoassets released by way of ICO or even tokenised securities. What JP Morgan has actually done is integrate blockchain technology into their internal payment system.

Many uses of blockchain technology can be defined as utilising cryptoassets, however, they are not the same thing. As a result of the misuse of terminology, the distinction between a system utilising blockchain technology in such a way that it creates a payment system or secure ledger and a cryptoasset is often confused.

Although technically correct to state the system used by JP Morgan utilises cryptoassets, it is not the same as what that majority deem as a cryptoasset, such as Bitcoin, Ethereum and Ripple. Those cryptoassets are traded publically, JP Morgan’s cryptoasset will not and therefore it will have no value. That does not necessarily mean that it is valueless; the technology has a value to JP Morgan and the intellectual property used for the system will have value, however, the “cryptoassets” used for the system will not.

Anyone that has a wallet can own Bitcoin, Ethereum or Ripple. The JP Morgan “cryptoasset” is for the internal use of the investment bank only. It is essentially a proprietary system used by JP Morgan to enhance the efficiency of their internal payment system.

The purpose of JP Morgan using this new system is to speed up payment transfers and reducing their client’s counterparty and settlement risk. Some will argue that JP Morgan, much like many other proprietary blockchain software users, do not actually need to implement this technology. This appears to be true, it is not essential; however, the use of this technology may result in increased efficiency and lower costs internally at JP Morgan.

The Financial Conduct Authority recently released its guidance on cryptoassets and how each version of them are regulated. As JP Morgan’s cryptoasset will be available for certain wholesale clients to use within JP Morgan, if they are made available in England, it is likely these cryptoassets will constitute e-money and therefore be regulated. This is a consideration any organisation looking to supply an internal payment system to their clients, must keep in mind.

For further information on the Cryptocurrency market please contact Tom Hulme.

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Mackrell Turner Garrett Solicitors in London