The Significance of JPM Coin: Beyond Bitcoin and into Private Blockchain

Last week, JP Morgan Chase got a lot of press coverage. The reason: It announced its own digital currency — JPM Coin — that its institutional clients can use to transfer money among themselves and to/from JP Morgan. Some news articles have termed JPM Coin a cryptocurrency, akin to Bitcoin. But that is misleading. JPM Coin is not a cryptocurrency per se, because it can only be used on a private network, and JPM Coin’s value does not fluctuate: It is pegged to the US dollar; 1 JPM Coin = $1. Still, this is a significant development, in that a major US bank is using blockchain technology, which brought us Bitcoin and other cryptocurrencies, to transfer client money.

At LNWM, we have long said that investing in Bitcoin is dubious, but also that Bitcoin’s underlying technology — blockchain — is likely to revolutionize how businesses in different industries conduct transactions that require security and instant verification. Very simply, blockchain is a de-centralized, time-stamped ledger of transactions that are linked using cryptography. The blockchain used for Bitcoin is public and global, so it is constantly being verified by independent, unrelated computers looking for discrepancies. By contrast, JPM Coin is based on a private blockchain (called Quorum) developed and fully controlled by JP Morgan and access to which is limited to JP Morgan clients.

What is important to realize here is that JP Morgan is definitely not trying to create another Bitcoin or cryptocurrency. JPM Coin allows JP Morgan and its clients to accomplish a specific task — transfer money in US dollars to each other. It is very limited. But it does make money transfers instant among clients, saving the time and money required to do a wire transfer. We think it is these specific applications of blockchain technology that can make a big difference in the productivity of banks, brokerages, online ticket sellers and many other businesses by speeding up transactions in a secure way.

For more on bitcoin and blockchain, watch my presentation on this topic.

Josh Hile
Josh Hile
Josh is a senior investment analyst at Laird Norton Wealth Management. An MBA and CFA, he is responsible for research and recommendations on global equities and for due diligence and monitoring of equity investments.