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US investment bank JP Morgan has created a crypto-currency to help settle payments between clients in its wholesale payments business.
JPM Coin is the first digital currency to be backed by a major US bank.
The crypto-currency, which runs on blockchain technology, has been used successfully to move money between the bank and a client account.
JP Morgan says it sees potential in using digital coins to reduce risk and enable instant transfers.
Although JP Morgan’s chief executive Jamie Dimon has publicly criticised Bitcoin – the first crypto-currency in existence – on several occasions, the bank says it has always “believed in the potential of blockchain technology”.
“We are supportive of crypto-currencies as long as they are properly controlled and regulated,” Umar Farooq, JP Morgan’s head of Digital Treasury Services and Blockchain, wrote in an online Q&A page.
How do crypto-currencies work?
Virtual currencies can be used to pay for things in the real world, such as a hotel room, food or even a house.
Digital tokens are held in online wallets, and can be sent anonymously between users.
For this reason, crypto-currencies are attractive to people who want to make illegal purchases on the Dark Web – a part of the internet that is not indexed by search engines.
What is blockchain?
The blockchain is a ledger of blocks of information, such as transactions or agreements, that are stored across a network of computers.
This information is stored chronologically, can be viewed by a community of users, and is not usually managed by a central authority such as a bank or a government. Once published, the information in a certain block can’t be changed.
If people try to tamper with that information, it becomes obvious.
This is a powerful concept. Ten years ago, blockchain was combined with other technologies to create cryptocurrencies, and the first blockchain-based cryptocurrency was Bitcoin.
Can anyone use JPM Coin?
No. JPM Coin is not for retail customers – it will be used internally by JP Morgan to enable the instantaneous transfer of payments between institutional accounts.
When a JP Morgan client deposits money into an account, the money is converted into an equivalent number of JPM Coins.
The coins are used to perform transactions over the bank’s blockchain network Quorum with other clients, for example money movement or payments in securities transactions.
Once the transactions have been performed, holders of JPM Coins can redeem them for US dollars from the bank.
This story was originally published on BBC Technology News