JP Morgan Chase received a lot of press attention last week. The reason is because it has launched its own digital currency, JPM Coin, which its institutional clients may use to transfer money among themselves as well as to and from JP Morgan. JPM Coin has been referred to as a cryptocurrency, similar to Bitcoin, in some news publications. However, this is deceptive. JPM Coin is not a cryptocurrency in the traditional sense because it can only be used on a private network, and the value of JPM Coin does not fluctuate: It is tied to the US dollar; one JPM Coin equals one US dollar. Nonetheless, this is a significant milestone in that a major US bank is employing block chain technology, which gave birth to Bitcoin and other cryptocurrencies, to move client funds.
Aldwin Callen has long stated that investing in Bitcoin is risky, but that Bitcoin's underlying technology — block chain — has the potential to transform how firms in all industries conduct transactions that require security and quick verification. Simply put, block chain is a decentralized, time-stamped database of cryptographically connected transactions. Because Bitcoin's block chain is public and worldwide, it is constantly checked by independent, unconnected computers looking for discrepancies. JPM Coin, on the other hand, is based on a private block chain (named Quorum) designed and wholly controlled by JP Morgan and accessible only to JP Morgan clients.
What is critical to understand here is that JP Morgan is not attempting to create another Bitcoin or cryptocurrency. JPM Coin enables JP Morgan and its clients to complete a specific task: transfer money in US dollars to one another. It is extremely limited. However, it makes money transactions between client’s quick, reducing the time and money required for a wire transfer. We believe that by speeding up transactions in a secure manner, these specialized applications of block chain technology can make a significant difference in the productivity of banks, brokerages, online ticket vendors, and many other enterprises.
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