Andrew “Drew” Hinkes, General Counsel of Athena Blockchain.

JPMorgan Chase & Co.'s announcement last week that it has developed and tested its own digital coin, called JPM Coin, is a huge fintech development, said Andrew “Drew” Hinkes, general counsel, chief legal officer and partner of Athena Blockchain, an advisory firm that helps companies issue securities in token form.

It's the first move by a U.S. bank—the nation's largest at more than $2.6 trillion in assets—and is likely to make a significant impact on banking, cryptocurrency and the economy, he said.

“The largest bank in the U.S. is making a very smart play to capture a lot of capital and a very unique data set, and to minimize fees in a unique way going forward,” Hinkes said.

The project involves a number of regulatory issues that need to be addressed, including state and federal money transmitter laws. Those issues involve agencies such as the U.S. Securities and Exchange Commission, the Commodity Futures Trading Commission and the Financial Industry Regulatory Authority. The bank's attorneys likely began discussing the project with regulators long before the bank's plans were announced, Hinkes said.

As for what this development means for attorneys practicing in fintech and financial services in general, Hinkes said clients will want to understand how this changes their banking relationships.

“Counsel needs to understand the technology in the difference between public and private systems to advise their clients as to the impact of these new technologies,” Hinkes said. “Financial services companies need to understand how this development may change their financial relationships. And privacy advocates may be concerned about the centralization of private financial data.”

JP Morgan said it successfully created a digital token with a stable value tied 1:1 to the U.S. dollar, based on blockchain technology allowing immediate transfer of payments between institutional accounts. When one bank client sends money to another using their Quorum blockchain, the digital coins will be transferred and redeemed for the equivalent amount of dollars, reducing the time it takes to settle a transaction, the bank said in a statement. The virtual coin is a prototype that will be tested with institutional clients in business-to-business transactions, and it has not yet been approved by regulators.

“As we move towards production we will actively engage our regulators to explain its design and solicit their feedback and any necessary approvals,” said the statement attributed to Umar Farooq, head of digital treasury services and blockchain at JP Morgan.

Asked for further comment, a spokesperson for the bank referred back to the statement.

Hinkes, who is also an adjunct professor at New York University School of Law and NYU Stern School of Business, said, “This allows [JPMorgan] conceptually to capture massive amounts of client money and move it in token form instead of in actual cash form, which saves tremendously on fees, and will allow the bank to capture data about transactions that no one else will have.”

Unlike Bitcoin or Ether, it is not on a public network where transactions are validated by multiple distributed parties.

JP Morgan's announcement came as a surprise to some observers because Chairman and CEO Jamie Dimon expressed disdain for bitcoin, calling it at various times “a terrible store of value” in 2014 and “a fraud” 2017.

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