A digital payment system called CellBlocks wants to use blockchain to change the way America’s prisoners receive money and use it behind bars.

U.S. inmates typically aren’t allowed to hold cash, but they can receive funds into commissary accounts that can be used to purchase items such as snacks, personal hygiene products and stationery. Funds can come from friends and family on the outside or from wages for prison work.

But third-party processors that enable transfers from outside charge a lot. For example, JPay charges an $11.50 fee to send $100 by phone to an inmate at the Louisiana State Penitentiary. JPay, which describes itself as the fastest such service, says transfers post within one business day.

“We don’t want to give tokens out to people who are looking at making a profit, so we’re going to raise money from private investors,” Brown says. “We want inmates to be able to control it.”

According to a recent report from Prison Policy Initiative, incarcerated people spend an average of $947 annually at prison commissaries. In 2014 Time Magazine reported on the high fees charged by companies such as JPay.

Tokens as Prison Currency

This is where Castle Rock, Colo.-based Cellblocks says it can help. By using a blockchain-based system, this startup says it can dramatically reduce the processing fees and times and also allow inmates to send funds securely to other inmates. Because inmates typically can’t possess cash, black-market economies develop in which prisoners trade contraband or commissary items. Cellblocks’ system would allow them to give each other “official” funds that could be used at the commissary.

There are benefits for correctional institutions, too. They can pay inmates wages for prison work using Cellblocks’ CLBK tokens “recycled” from the commissary’s account, Jonas Brown, CellBlocks’ founder, tells ThirtyK.

They can also gain insight into how inmates are transferring funds to other prisoners, he adds: “If we see Joe Blow is paying out a big chunk of money to [another inmate] we know to keep an eye on it.”

Cutting Costs

Cellblocks own processing fees are low; for example, the company takes 24 cents per $50 transaction, according to its marketing document. States can tack on their own fees for each transaction to raise revenue. Even with that surcharge, Brown says the total fees charged to inmates’ loved ones would be significantly lower than those charged by companies like JPay.

Cellblocks’ tokens are designed on the Ethereum network, and the system would use a wall-mounted kiosk where inmates can access their digital wallets using a barcode attached to their IDs and a fingerprint scanner. CellBlocks estimates these units would cost $3,000 each. It is currently seeking private investment and is in discussions with several institutions about pilot programs, Brown says.

The company had considered conducting an initial coin offering, or ICO, but scrapped those plans in order to discourage outsiders from speculating in its tokens.

“We don’t want to give tokens out to people who are looking at making a profit, so we’re going to raise money from private investors,” Brown says. “We want inmates to be able to control it.”

Brown says Cellblocks’ next goal is to raise the private financing so it can cover the full cost of a pilot program in a state prison, including a cash reserve that would be used to reimburse token holders in the event the program didn’t work out. A successful pilot would allow the company to go to other prisons and ask them to cover the cost of setting up the system, knowing that it would produce revenue, he adds.

Craig Guillot
Craig Guillot is a business writer who specializes in tech, retail and supply chain. He is a regular contributor to Chief Executive Magazine, STORES Magazine (National Retail Federation) and Supply Chain Dive.