I know that many of you did not believe your eyes after reading my headline. Bear me a couple of minutes while I playing devil's lawyer. JP Morgan Chase and Facebook are working on their own digital currency projects. Private (propietary) digital currencies are “blockchains with permission”, managed centrally. This year, JP Morgan announced the launch of its own cryptocurrency - JPM Coin. And Facebook announced the planned release of its own cryptocurrency last year.
Cryptocurrencies or digital assets?
In the broad masses, digital currencies are calledcryptocurrencies. However, to call private digital currency cryptocurrency is an oxymoron (a figurative combination of conflicting concepts). Many people simply do not know what a private digital currency or blockchain is with permission, and they use the term cryptocurrency to apply to it.
Cryptocurrency is a digital asset,designed to work as a medium of exchange using reliable cryptography to protect financial transactions, control the creation of additional tokens (coins) and verify the transfer of assets. Unlike a centralized digital currency and a centralized banking system, cryptocurrencies use decentralized control.
Thus, these new corporate coins are indeed digital assets, but not cryptocurrencies. The question is, how much does this difference matter?
JPM Coin conceived as a stablecoin tied toUS dollar. Stablecoins are digital assets whose value is determined on the basis of another underlying asset, for example, as in this case, on the basis of the US dollar. JPM Coin will be used by JP Morgan for domestic and international settlements between institutional clients of the bank. However, someday households will be able to use this coin. Jamie Dimon recently stated that "JP Morgan Coin may be domestic, may be commercial, but it will probably one day become consumer."
It is unclear whether the coin will ever become JPM Coinavailable to the public, but if this happens, it would be a boon to the crypto industry as a whole. And JPM Coin is not the only private digital currency to be created.
Facebook is working on a private digitalcurrency that will be used to facilitate mobile payments in his WhatsApp messaging service. WhatsApp customer base has more than 1.5 billion users in 180 countries, the number of which exceeds Facebook Messenger and WeChat users. Libra can also be integrated into Facebook Messenger. The potential market for coins from Facebook is huge.
Mobile Payment Industry
Turnover in the mobile payments industry for 2016year amounted to $ 601 billion and grow by 33.5% per year. By 2023, mobile payments are expected to reach $ 4,574 billion. The largest players are Google Wallet and Apple Pay. Significant growth in mobile payments occurs in the Asia-Pacific region, mainly due to the relatively young population.
The SMS segment is currently the largest.in the market, but that can change quickly if you can quickly make payments in messaging applications. Today, SMS payments include sending an SMS message to the seller for purchase, then the purchase price is debited to the phone bill or debited from the prepaid balance by the mobile company.
From the very moment of creating cryptocurrencies, they triedachieve widespread distribution. Although the cryptocurrency industry has grown rapidly since the advent of Bitcoin, it still has not been widely adopted. Cryptocurrencies still suffer from problems with the user interface, storage (lost keys), hacker attacks and fraudulent ICOs. Not surprisingly, in this regard, the average person is afraid to use cryptocurrencies.
“You can’t assume that cryptocurrencies have become widespread until my 92-year-old grandfather begins to use them”
Most people don’t understand what money is,not to mention cryptocurrency. An explanation of what money is is the subject of a separate series of articles. We give an example. To drive a car, you don’t need to understand how the engine works, it’s important to realize only that it is useful and makes our life easier. Similarly with digital currency and cryptocurrency. Only after realizing how digital currencies and cryptocurrencies will begin to improve our lives, they will become widespread among the masses.
Based on CambridgeThe University of Global Comparative Analysis of Crypto Assets concluded that there is a large growth in the crypto assets and cryptocurrency sector. The number of cryptocurrency users has grown from 18 million in 2017 to 35 million in 2018. However, although this represents an increase of 94% per year, it is only 4.73% of the total world population. Until my 92-year-old grandfather uses a crypt, we will not be able to achieve its mass adoption.
The answer lies in private digital currencies.
Digital currencies offered by JP Morgan Chase andFacebook can be a solution to the problem of mass adoption. Billions of people have already installed the necessary applications on their devices to use them. Without a doubt, a decisive and courageous step for people will be the process of sending funds for the first time using one of the centralized coins. For example, it can be such simple things as sending $ 100 to a friend in Japan that you owe him or buying things in your favorite console game. As soon as you get used to using forms of value other than local paper currency, using real cryptocurrencies will not seem so incredible.
Wolf in sheep's clothing?
There are inherent risks inherent in a centralizeddigital currencies. For example, JPM Coin is likely to be pegged to the value of the US dollar, while rumored Facebook Coin plans to peg to a basket of three fiat currencies. Therefore, it is likely that in the next global financial crisis, these assets (or credit bills) will be exposed to the same risks as the fiat currencies to which they are tied. Also, Facebook may freeze the user's assets due to the politically unpopular publication made on their resources. And JPM Coin can be confiscated by the federal government in the same way as gold was confiscated by the US government in 1933.
Will lawsuits be filed on Facebook in connection witha ban on cryptocurrency ads? Indeed, given the fact that they have been working on their own coin for some time, this can be perceived as anti-competitive behavior on the part of the Internet giant. And even though Facebook eased the ban by allowing “pre-approved” ads, a general ban on ICOs is still in effect.
Centralized digital currencies will not replace true cryptocurrencies
Cryptocurrencies will always find a place in the globalmonetary system due to too many geopolitical risks, casting doubt on the feasibility of storing assets in fiat currencies or in their derivative securities. For the same reasons, precious metals were used as a means of storage even before the creation of the currency, and are still widespread. Central banks tend to own huge gold reserves because they do not trust the value of currencies printed by other central banks. For example, you can look at the exchange rates of countries such as Venezuela and Zimbabwe.
“The future is uncertain, so I'm sure cryptocurrencies are serious and long lasting.”
Despite the fact that cryptocurrencies are not convenient forordinary users, they have numerous characteristics that allow them to perfectly diversify the risks inherent in traditional asset classes. For example:
- “Without permission.” Anyone connected to the Internet canaccess cryptocurrencies. Even without an internet connection, you can make transactions using NFC (near field communication) from mobile to mobile.
- Immutability and irreversibility. A transaction cannot be canceled if it is included in the blockchain. If the transaction contains information, then this information cannot be deleted.
- Confidentiality. Some cryptocurrencies provide for complete anonymity, which makes it difficult to obtain information about the number of user assets, as well as the possibility of unauthorized access to them.
- Fast, low cost transactions. Cryptocurrency transactions occur much faster than bank transfers. So, for example, the average block time in Ethereum is fourteen seconds.
- Total volume known. Cryptocurrencies are programmable money, and theircharacteristics are predetermined. We know that only 21 million bitcoins will be released. We have no idea how much and how much US dollars will be printed over the next decade. And although the characteristics of cryptocurrencies can be changed, this is possible only with the consensus consent of the entire cryptocurrency community.
- Inability to withdraw a payment. Merchants can be calm, knowing that transactions cannot be canceled, unlike payment by credit card. Paypal has the same problems with returns.
The advent of JPM Coin and Facebook Coin isan objectively positive factor for the cryptocurrency industry as a whole. Material values that will be presented to users through everyday applications can be expressed in various forms and transmitted in many ways. Subsequently, some of these users may switch to “true” cryptocurrencies. Perhaps they will do it out of curiosity, or maybe during the next global financial crisis. The future is uncertain, therefore I am sure that cryptocurrencies are serious and for a long time.