After the great dip of last year’s “Crypto winter”, the market seems to be recovering in a healthy way, and the news seem to have reached new ears, since the announcements from great multinational companies venturing into the uses of blockchain and developing their own tokens are more frequent by the day.
But are these tokens really examples of true cryptocurrency? Or are they just fancy names for their own iterations of electronic money (e-money)? Let’s remember the main differences between these two concepts that seem very similar in a superficial way, and then discuss which definition best fits each project.
E-money vs Cryptocurrency
Electronic money refers to a simple balance, expressed in terms of a fiat currency, that is stored digitally in a server or database. Said balance is used to perform transactions, which subtract the value directly from the balance and the server is updated. These transactions can include point-of-sale purchases, ATM withdrawals, transfers between two balances, and many others. However, these amounts are not linked to any bank account, yet are still equivalent to a fiat currency. Some examples include transfers stored in escrows, gift cards and payment accounts like Apple Pay and PayPal.
The main difference with cryptocurrency is that e-money can still be centralized, with a single company or organization controlling the supply, a complete opposite to the main feature of cryptocurrency. This is the reason why we must be cautious when analyzing proposals from big companies that want to implement their own token, as these can just be their own iteration of e-money instead of a proper cryptocurrency.
The clearest example can be JPMorgan’s project for a cryptocurrency, which immediately made the public raise their eyebrows, because the idea of such a finance giant venturing into a market that defies some of the main points of banking. Their initial statement says it’s supposed to give corporate clients a way to make real-time payments, but this can be achieved without having to implement a decentralized proof-of-work model for a token that’s not linked to any fiat currency to be used.
Many Japanese banks are also showing interest in implementing digital currencies for payment options, much like Apple Pay, but the basis for discussion has already been set. Mizuho, one of the three ‘megabanks’, released their J-Coin token, which they promoted as a cryptocurrency, but it does not even work through a blockchain, making it just another iteration of e-money.
The Mitsubishi UFJ Financial Group has also shown interest in implementing digital solutions for payments, announcing research being made towards launching their MUFG coin back in 2016, but right now they’re focusing in developing payment options based in blockchain.
Like these ones, there are many examples of companies taking advantage on the popularity of blockchain and cryptocurrencies to gain leverage when they announce projects like these.
Smaller steps before big leaps
Some other companies have decided a more subtle approach to the cryptocurrency market, where they focus on entering the environment via secondary services before implementing their own blockchain or coins.
Kakao, the biggest instant messaging app in Korea, announced they will be integrating a crypto wallet service for their 44 million users. This is a great move, considering the popularity of cryptocurrencies in Korea, and can also help them to measure the response of their userbase, which can be used as a metric for future projects.
On the other hand, there are companies that decide to fully dive into the market by releasing, not only their own token (Link), but to base it in their own blockchain (Link chain). Due to legal issues, Japan and US users are ironically not able to purchase or trade this token, which undermined the benefit of their 200 million users, and the only exchange that sells it at the moment is BitBox. They are still making efforts for other exchanges to list their Link token, but it’s interesting to see how a huge company decides to take this big step thanks to their userbase.
With more and more of these companies with outstandingly high reach and userbases announcing projects, more people that are inexperienced in the crypto trading environment decide to follow their lead, which allows the market to grow organically and, in turn, motivating more companies to step in. It’s an interesting dynamic that should be closely followed in the next few months or years.