Cryptocurrency has come a long way since bitcoin's emergence as an unregulated, anonymous payment technology. Perhaps the most poignant moment in this evolution came about last week when JPMorgan Chase announced the development of the JPM Coin, the first bank-backed cryptocurrency in the U.S., which the institution plans to deploy in its corporate payments operation.
According to blockchain and cryptocurrency company BitRail, JPMorgan's announcement was certainly a validating moment for the industry. However, participation from the traditional financial services sector isn't necessarily a requirement when it comes to crypto adoption, even in the B2B payments market, according to BitRail Co-founder and Vice Chairman Cameron Chell.
Whether adoption is driven by the big banks or not, it's clear that cryptocurrency is no longer in the land of the lawless. Indeed, what will drive crypto adoption, Chell told PYMNTS, is in the technology's ability to reduce payments friction, and integrate compliance and security.
"Adoption is like water," he said. "It's going to go where cost savings are the greatest, and where there is the least amount of risk. I don't think the key factor is having banks adopt it."
While JPMorgan's announcement of the JPM Coin — which will be a stablecoin pegged to the value of the U.S. dollar — was certainly "validating," Chell said, adoption will mostly be driven by merchants' desire to enable seamless digital payments. That is, without having to pay the fees or give up customer data to third-party service providers like PayPal or Visa — information that can be valuable to businesses that want to develop their own loyalty programs, for example.
In the corporate payments space, the fruit that hangs the lowest is in vendor payments, and in the ability to integrate verification into transactions. Based on BitRail's own conversations with potential clients, businesses are interested in using cryptocurrency in accounts payable, particularly among logistics firms that want to use blockchain technology for track-and-trace functionality. Chell added that there have been several gig economy players expressing interest in using cryptocurrency for real-time payments for gig workers, while there have also been some inquiries among treasurers at larger corporations exploring the use of blockchain and cryptocurrency for things like foreign currency conversion and automatic sales tax calculations.
BitRail doesn't yet operate in the B2B payments space. However, the company first rolled onto the scene as a partner of GunBroker, allowing the firearms retailer to offer its own digital coin as a more secure form of payment. Chell explained that it automatically integrates compliance due diligence, like background checks and age requirement adherence, based on where sales are made — noting these security features in contrast with the reputation of crypto to provide anonymity in highly regulated industries like this.
Yet, as the company looks to expand, Chell said he sees opportunity to facilitate B2B payments.
"I think the future of B2B payments is cryptocurrency," he said. "I'm biased, but if JPMorgan is any indication, what they're doing with B2B payments internally is where the industry is going to go."
Confusion, Doubt Remain
Others disagree that JPMorgan's announcement will have any impact on the use of cryptocurrency in B2B payments — or on the cryptocurrency market at all. Reports in SludgeFeed noted that JPMorgan shares dropped 1 percent following news of the JPM Coin, while the cryptocurrency AltDex 100 Index dropped 0.6 percent.
Other analysts pointed out that the JPM Coin isn't really a cryptocurrency at all.
"There's a lot of confusion," said Coin Center Executive Director Jerry Brito in an interview with MarketWatch last week. "I see folks referring to it as a cryptocurrency. It's not a cryptocurrency. A cryptocurrency is one that is open and permissionless. If you wanted to download it, you don't need permission; you just need some software."
That doesn't describe JPMorgan's technology, the publication said (nor is the JPM Coin a stablecoin, it added).
Interestingly, JPMorgan CEO Jamie Dimon has historically been one of the loudest critics of cryptocurrency, slamming the technology as "a fraud." Yet, even as other cryptocurrency firms like Ripple scoff at the thought of JPMorgan competing in the market, the industry has strengthened its relationship with the traditional financial services space.
Blockchain firm R3 recently formed a partnership with payments messaging firm SWIFT, a deal that will see SWIFT link R3's blockchain platform with its gpi framework, which has become a key component of SWIFT's cross-border B2B payments operations. However, their collaboration won't involve cryptocurrency — a continued sign of traditional financial institutions' (FIs') hesitancy, reports in CNBC said.
Regardless, others in the cryptocurrency market, including Chell, have said that cryptocurrency will continue to gain traction, even if the big banks don't participate. One reason, he said, is for the technology's ability to work alongside regulations and traditional systems to promote compliance and security.
"The barriers to adoption, from a technology standpoint, are already so low," he said. "We don't need a Fortune 50 adopting this. It's going to be the Fortune 10,000 that push this through for their own competitive reasons, and I think inside of 18 months, [adoption] will hit a tipping point."