Why Are Big Corporations Minting Their Own Cryptocurrencies?
A slew of big businesses are producing their own virtual coins, upping the ante on digital currencies.
The recent swell of news began in February when J.P. Morgan announced “JPM Coin” for use on their private network. Later that month, the New York Times reported that internet giants Facebook and Telegram were planning to roll out digital coins for the billions of people around the globe that use their messaging services. Then, in April, Nike filed a trademark application for a digital token called “Cryptokicks.” Shortly thereafter, Jaguar Land Rover announced they had developed a “smart wallet” to enable drivers to earn cryptocurrency while on the road.
After a number of years of record corporate investment to develop cryptocurrency and blockchain-related startups, it appears that the early adopters among them believe issuing their own coins will give them a competitive edge. So what’s in it for them? Why are businesses so interested in creating their own cryptocurrencies?
Instant payment mechanisms
The pioneers of cryptocurrencies like Bitcoin and Ethereum believed that blockchain technology could be used for radical decentralization, censorship resistance, openness, and neutrality. For-profit corporations? Not so much.
What they are attracted to, however, is a speedy payment solution. As Umar Farooq, head of Digital Treasury Services and Blockchain at JPMorgan Chase stated, “JPM Coin is a digital coin designed to make instantaneous payments using blockchain technology. Exchanging value, such as money, between different parties over a blockchain requires a digital currency, so we created the JPM Coin.” For a multinational bank that sloshes around billions of dollars in securities transactions each day between its internal corporate accounts, that makes plenty of sense.
Incentivizing Loyalty and Collecting Customer Data
For consumer brands like Nike, loyalty is key. Nike’s trademark in “Cryptokicks” is expected to build the company’s brand around different types of games, collectables, and rewards:
“Provision of online blogs in the field of crypto-collectibles; entertainment services, namely, providing an online computer games… curated scavenger hunts, obstacle courses or treasure hunts; entertainment services, namely, providing interactive online mobile gaming applications; providing information on-line relating to crypto-collectible customization for hobby or entertainment purposes.”
These coins are like loyalty points at existing retailers. What’s new are the novel capabilities and applications in how the currency may be accrued and spent.
Jaguar’s play in cryptocurrency has drivers earning money by reporting road conditions and weather updates. As blockchain technology enables machine-to-machine communication, the earnings may be used to automatically pay for tolls, parking, and electronic charging. Similarly, Facebook has discussed the idea of paying users fractions of a coin when they interact with content, shop on its platform, or view ads. After years of seeing large tech companies profit off of user data, the idea that those companies should pay out a “data dividend” is starting to gain traction.
Disrupting Credit Card Companies
As reported by the Wall Street Journal (paywall), Facebook’s plan to launch a cryptocurrency-based payment system threatens to abolish the 2-3% card processing fees that merchants pay on ecommerce transactions. “If it succeeds, the project threatens the card networks’ dominance over global payments. Facebook comes armed with more than 1.5 billion daily users, many of them in developing countries where social-media sites provide the backbone of internet commerce.”
Preparing for the Crypto-Future
Companies are preparing for the future by releasing their own digital currencies. Unlike “true” cryptocurrencies such as Bitcoin, which operate on public blockchains, these “stablecoins” are backed by fiat-currencies and serve as a bridge between traditional finance and the future of decentralized, cryptographic exchange. The early adopters are planting their stakes in the future of programmable money, and others will surely follow, with a net result of more capital and more growth in the industry.
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