JPMorgan creates a crypto-currency indexed on the dollar

JPMorgan Chase is developing a new cryptocurrency called JPM Coin, whose value will be linked to the US dollar, the bank announced Thursday. The new blockchain private platform is designed to help JPMorgan's large customers transfer money around the world. The new cryptocurrency will be built on JPMorgan's Quorum Block Chain technology, a variation of Ethereum that has been modified to meet the needs of a large financial institution such as JPMorgan.

The Ethereum network is public and open to everyone. Quorum is a private blockchain where a network owner can control who has access. All transactions on the Ethereum network are visible to everyone on the network. On the other hand, Quorum network nodes can create encrypted transactions (and smart contracts) only visible to the parties to the transaction.

Quorum also rejects the work validation algorithm that secures the Ethereum network in favor of a simpler system based on majority vote voting among nodes in the network. Networks of public channels like Ethereum use work proof algorithms to protect themselves from Sybil attacks, in which someone tries to take control of a network by creating many zombie nodes. But Sybil attacks are not a problem in an authorized blockchain such as Quorum, because each node is bound to an actual identity verified by the network owner.

Ethereum network throughput is limited to approximately 15 to 20 transactions per second. Quorum improves the situation by at least an order of magnitude and comfortably handles hundreds of transactions per second. And of course, the JPM Coin network will only be available for certain JPMorgan customers. So you do not have to worry that it is invaded by cryptokitties or other modes. The network should be able to easily handle customer demand in the foreseeable future.

The value of bitcoins and Ethereum Ethereum floats on the open market. In contrast, JPMorgan will guarantee that each JPM coin can be exchanged for $ 1. While the system will initially be based on quorum, JPMorgan indicates that it will eventually be extended to other blockchain networks.

So what?

So what's the point of all this? JPMorgan helps its largest customers move large amounts of money around the world every day – from one customer to another or from one conglomerate to another. As CNBC points out, international payments are often made using old-style payment networks, such as Swift, which can take a day or more to clear customs. In contrast, the Quorum network can clear transactions in seconds.

It is also possible to extend this system to other types of transactions. The system is flexible enough for JPM coins to be denominated in euros, yen, or other major currencies. It may also be used to facilitate the sale and transfer of other badets, such as stocks or bonds.

For the moment, JPMorgan's individual customers will not have access to the JPM Coin network, intended for business-to-business transactions. But in the long run, the network could theoretically become the basis for new payment services for consumers, although this might require a major redesign of the network architecture to support higher throughput.

"The applications are frankly endless," CNBC's Umar Farooq told JPMorgan. "Anything that concerns a large distributed book involving companies or institutions can use it."

A big unanswered question is: what value is added by doing this as a blockchain network rather than a conventional database running on JPMorgan servers? The point of sale of a conventional blockchain network such as Bitcoin or Ethereum is that it is open to anyone and therefore it can enable cooperation between people who do not trust each other.

But JPM Coin will only be open to JPMorgan's customers. And two parties who are both JPMorgan customers can already rely on JPMorgan as a trusted intermediary for any financial transactions they may want to make. It is therefore not clear in what way the use of a blockchain is useful.