Reliance Jio Infocomm Ltd (owned by Reliance Industries Ltd) plans to set up its own cryptocurrency called JioCoin, according to media reports. Among other objectives, the move is aimed at improving supply chain management through smart contracts. The project is to be headed by Akash Ambani, the son of Reliance Industries chairman Mukesh Ambani, who is currently recruiting 50 young professionals to get it off the ground.
This would of course not be the first corporation to launch its own cryptocurrency. Yesteryears’ leader in photography, Kodak announced its own foray into this space a few weeks ago. Kodakcoin will be part of an online ecosystem in which photographers can upload their works, sell and receive payments for them and monitor copyright infringements. The announcement caused a sharp jump in the hitherto dormant Kodak stock. The Economist reports that Facebook is also contemplating its own cryptocurrency. One of the world’s largest cryptocurrencies, Ripple, was created by a private corporation.
Although JioCoin is far from reality at present – the question does arise as to whether it or something like it can be India’s answer to Bitcoin. If yes, should you get in early when it comes? Alternatively, should you take a second look at RIL stock?
Why it can work
With the backing of one of India’s largest conglomerates and richest man, JioCoin will have a lot going for it. Reliance has interests from petroleum to telecom to media and much else. Assuming that JioCoin will be accepted at those businesses, there’s a lot you can spend it on, thereby solving a key cryptocurrency problem – where to use. Other major companies may also begin accepting it in collaboration with Reliance thereby building a network effect. Assuming that Reliance is able to limit the quantity of Jiocoin that can be created, just like other cryptocurrencies, people may also begin to see it as a store of value.
Why it might not work
Reliance is an India centric group and issuance of a cryptocurrency threatens the monopoly of the only authorised issuer of currency in India – the Government. Bitcoin is already the subject of a government inquiry and although it hasn’t been declared explicitly illegal, both the finance ministry and RBI have repeatedly emphasised that it is not a legal tender. The finance ministry has also called it a ‘Ponzi scheme’ and said that people are investing at their own risk.
JioCoin would also violate a fundamental characteristic of a cryptocurrency – no central authority should control it. If Reliance can issue, thereby debasing their value or if it can seize JioCoins from users, it would not be been seen as comparable to a standard decentralised cryptocurrency. Also, other Indian corporates might well launch their own cryptocurrencies – posing a threat to JioCoin. Foreign companies have already done so.
How about RIL stock?
Without proof of concept, there is little basis to take a call on RIL stock due to JioCoin. However, if the project succeeds, buying the stock might be a smart way of getting on the bus. In addition, since stocks are regulated heavily by SEBI and backed up by a company’s earnings and balance sheet, the risk is also lower.
What to do
Keep a watch on this space. The Government is likely to formulate a policy on cryptocurrencies within the next few months. This can range from a complete ban to a detailed regulatory clampdown. This will map out the future of JioCoin – hot or not.