Crypto still feebly grasping for a use case
Credit to Author: BEN KRITZ, TMT| Date: Mon, 18 Feb 2019 16:21:06 +0000
BANKING giant JPMorgan Chase created a momentary blip last week with the announcement that it had developed a prototype cryptocurrency, the first among major banks. The move was hailed by crypto evangelists as a major step toward legitimizing the concept of imaginary electric fairy tokens as money, particularly since JPMorgan chief executive officer Jamie Dimon has been one of cryptocurrency’s most vocal critics. Dimon famously dismissed cryptocurrency as “a fraud” just as the Bitcoin bubble was beginning its rapid inflation in late 2017.
“Every major bank in the world is assessing the situation and developing a crypto/blockchain strategy. Either the banks disrupt themselves or they let others disrupt them,” venture capitalist and self-described “crypto oracle” Lou Kerner gushed in an interview with AFP. “The crypto genie is out of the bottle.”
About two days before the JPM announcement, however, there was another piece of news that suggested that perhaps the bottle is just being washed out to be used for something else. A terse statement from Ripple announced that its chief market strategist Cory Johnson had left the company, apparently not under his own power.
“Cory’s last year at Ripple was a success in representing the company to investors, press and regulators. Cory helped Ripple with strategy internally and overall industry education,” Ripple’s statement said. “But due to changes in market conditions, we’ve chosen to eliminate the role of Chief Market Strategist.”
This development is substantially more revealing than the forced enthusiasm of experts like Lou Kerner, because among the “major” cryptocurrencies (Bitcoin, Litecoin, Ethereum, and Ripple), Ripple has actively tried to position itself as a cryptocurrency/blockchain system for the banking industry. Whether or not the development at JPM had anything to do with Ripple’s decision is unknown, but it has apparently reached the conclusion that its target market does not have enough potential to even bother with having a strategy for it.
Reading between the lines of the news of the launch of the “JPM Coin” tends to support the impression that cryptocurrency and blockchain technology is quite a bit less disruptive than it is hoped it would be. The JPM Coin, which the bank was careful to stress is still considered a prototype, will be made available to JPMorgan’s institutional customers to make business-to-business payments to other bank clients.
It is hard to describe the new payment system as innovative, despite its being based on a distributed ledger. Instead of making payments (in real money) from their JPM accounts to the JPM accounts of other clients, the institutional customers can now make payments (in JPM Coin) from a digital wallet directly to the digital wallet of another client – who can then exchange the JPM coins for US dollars through the bank, or keep them in the digital wallet for other B2B transactions. Unless JPM’s conventional payment systems process transactions at a fantastically slow rate, the speed advantage offered by the blockchain system is modest. At best, the new system simply eliminates one step in the conventional process; if the payee needs to convert the digital token to real money, however, even this benefit is canceled out.
Nothing the new blockchain system does is anything that cannot be done by much simpler automated systems using the bank’s existing technological framework. These systems are AI-driven programs being applied to financial processes such as payments, loan underwriting, and even insurance underwriting, and represent a legitimate disruption in the financial world: Technology that represents a revolutionary step forward, but not so revolutionary that it does not have a conceivable use case. Blockchain and cryptocurrency, by contrast, has never firmly established a use case other than just being different than what existed before.
Nonetheless, the intentions behind JPM’s blockchain payments experiment seem valid enough. Having thrown a bunch of money into “doing something” with cryptocurrency at the height of the craze in the latter half of 2017 to avoid getting caught behind a technological curve, the banking giant is largely trying to avoid wasting the attention and resources devoted to it so far. And even though blockchain is turning out to be a whole lot less revolutionary than everyone thought it might be, it is still too soon to dismiss its potential utility entirely. A small-scale live test limited to a specific application – much the same approach as is being taken in trade transactions – is a realistic way to assess the technology.
If that is the case, then JPM appears to be on the right side of the axiom coined by Stanford professor Roy Amara in the 1970s and known as Amara’s Law, because in economics one’s ability to state the obvious is considered a gift. Amara’s Law states that the impact of any great technological change is overestimated in the short run, and underestimated over the longer term. By continuing to study and test blockchain technology in a limited, manageable fashion now, the bank is likely avoiding missing out or being caught behind the curve later on – perhaps three to five years from now – when it will matter more. And if it turns out that blockchain is hopelessly impractical for large-scale use – which is entirely possible – and nothing else of value can be derived from the technology, then the bank will have lost comparatively little in exploring it.
ben.kritz@manilatimes.net
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