Blockchains make strange bedfellows.

For years, Jamie Dimon has derided digital currencies. Now, his company has teamed up with the creators of one of the most prominent “altcoins” to build privacy features for the bank's blockchain platform.

JPMorgan Chase’s partnership with Zerocoin Electronic Coin Co., announced Monday, is perhaps the most surprising alliance yet as traditional financial institutions co-opt a technology originally developed to route around them.

ZECC’s founder, Zooko Wilcox, was part of the 1990s cypherpunk movement, which sought to defend individual privacy through strong cryptography. Last year his firm released Zcash, a cryptocurrency designed to be more anonymous than bitcoin.

Just that phrase, “more anonymous than bitcoin,” might send shivers up the spines of some bank compliance officers, to say nothing of regulators. So, just to be clear: JPMorgan isn’t using Zcash. "This is solely a technology transfer agreement," Wilcox said.

Instead, his team will use the same cryptographic techniques to add a “security layer” to Quorum, the system JPMorgan is developing to run smart contracts.

In their most basic form, blockchains allow all participants in a network to see who has done what. But that transparency has been a turn-off for financial institutions, which don’t want to tip their hands to competitors, or reveal confidential client data.

“Existing smart contract systems on replicated shared ledgers are unable to provide data privacy — transactions and smart contract state data are exposed in the clear on the replicated shared ledger,” JPMorgan said in a white paper for Quorum published in November.

Quorum was designed so that a smart contract would be visible only to the parties, not the whole network. But that, by itself, precludes the contracts from involving assets that could later be transferred to other participants in the network. "You can't prove to Charlie that Bob is the legitimate owner of an asset while concealing that Alice was the previous legitimate owner," Wilcox said. ("Alice and Bob" are regular characters in the hypothetical examples given by cryptographers.)

The Zcash developers plan to enable Quorum smart contracts to trade transferable, resellable tokens, through a cryptographic method called zero-knowledge proofs. These allow someone to prove that a statement is true without conveying any other information.

In the Zcash currency, for example, zero-knowledge proofs provide assurance that users are only spending money that they have without revealing on the public ledger how much they have received from or sent to others. Participants can selectively decrypt such details about their own transactions, however, making it possible to comply with audits or court orders. Otherwise, the ledger is just a list of timestamped transactions, with the senders, recipients and amounts obscured.

Applying that technology to Quorum would allow tokens (representing real-world financial assets, say, shares in Apple) to circulate throughout the network, rather than be confined to bilateral agreements between banks, without sacrificing privacy.

“By adding the zero-knowledge security layer into Quorum, we are able to explore how state of the art cryptographic privacy technology will enhance the next generation of financial services applications,” Suresh Shetty, an executive director and lead architect for JPMorgan’s Blockchain Center of Excellence, said in a press release Monday.

Dimon has famously predicted that decentralized currencies like bitcoin — which let anyone with an internet connection send money anywhere in the world without the permission of an intermediary — are doomed. According to published reports, his bank has expressly forbidden banks it does business with to work with digital currency exchanges.

“Virtual currency, where it's called a bitcoin vs. a U.S. dollar, that's going to be stopped," Dimon said in 2015. "No government will ever support a virtual currency that goes around borders and doesn't have the same controls. It's not going to happen."

Bitcoin vending machine next to a Chase branch in Austin, Texas, photographed March 14, 2015
Together at last?
A bitcoin vending machine next door to a Chase branch in Austin, Texas, March 14, 2015. JPMorgan is now working with the creators of Zcash, a modified version of bitcoin. Marc Hochstein

Around that time, JPMorgan and other banks had begun to investigate the possibilities for their business of blockchain technology, which was originally developed to prevent double-spending of bitcoins. One advanced use case is smart contracts, which theoretically can cut costs in the financial system by automating much of the work done by lawyers, compliance officers, syndication desks, and others.

"Smart contracts on a replicated, shared ledger hold the promise of improving efficiency and lowering costs compared with existing enterprise systems based on duplicated business logic and consensus by reconciliation," the bank's Quorum white paper said.

JPMorgan participated in several of the industry alliances that are working to develop blockchain solutions for financial services, though it recently quit the R3 consortium. The bank decided to model Quorum on another open-source platform, the bitcoin rival Ethereum.

While Zcash started as a “fork,” or modified version, of bitcoin, Wilcox’s company has joined the Enterprise Ethereum Alliance, of which JPMorgan is also a member.

Wilcox said the Zcash currency has served as a showcase of sorts for the technology his company has been pitching to enterprises.

"We can point to the thing running live in the wild as proof that it works and we can deliver," he said.