The hits keep coming for virtual currency consultancy R3CEV.
Once derided as a blockchain support group for the consortium of financial institutions it amassed, R3CEV said repeatedly it wanted to build products. Today, it unveiled one at Money20/20 in Copenhagen: Corda, a distributed ledger for financial services companies.
The New York-based company also welcomed Microsoft to its consortium this week. This was essentially an expansion of an existing agreement, as R3’s blockchain tests have been performed on Microsoft’s Azure platform — and clearly will be going forward as well.
R3’s Chief Technology Officer Richard Gendal Brown describes Corda in a blogpost here.
First off, Corda is not a blockchain — that is, it does not share every transaction between all parties a s blockchain typically does. “Corda has no unnecessary global sharing of data: only those parties with a legitimate need to know can see the data within an agreement,” Brown wrote.
Here are the other key points:
- Corda choreographs workflow between firms without a central controller
- Corda achieves consensus between firms at the level of individual deals, not the level of the system
- Corda’s design directly enables regulatory and supervisory observer nodes
- Corda transactions are validated by parties to the transaction rather than a broader pool of unrelated validators
- Corda supports a variety of consensus mechanisms
- Corda records an explicit link between human-language legal prose documents and smart contract code
- Corda is built on industry-standard tools
- Corda has no native cryptocurrency
FIs participating in the R3 consortium will test Corda in the coming weeks, according to Bloomberg. The core of the platform will be released in future as open source, perhaps as a nod to the spirit of bitcoin that started all this.
Brown called Bitcoin’s architecture a marvel, but said that more significant is the “business problem” it can solve:
We don’t tend to think of Bitcoin as being the solution to a “business problem” but it can perhaps be thought of as a wonderfully neat solution to the problem of: “how do I create a system where nobody can stop me spending my own money?”
But this is not so interesting to banks, and therefore the design of the bitcoin blockchain, which makes everything available to everybody on the network, is not optimal for financial institutions. The problem FIs face is different:
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The financial industry is pretty much defined by the agreements that exist between its firms and these firms share a common problem: the agreement is typically recorded by both parties, indifferent systems and very large amounts of cost are caused by the need to fix things when these different systems end up believing different things. Multiple research firms have postulated that tens of billions of dollars are spent each year on this problem.
In particular, these systems typically communicate by exchanging messages: I send an update to you and just hope you reach the same conclusion about the new state of the agreement that I did. It’s why we have to spend so much money on reconciliation to check that we did indeed reach the same conclusions and more money again to deal with all the problems we uncover.
Now imagine we had a system for recording and managing financial agreements that was sharedacross firms, that recorded the agreement consistently and identically, that was visible to the appropriate regulators and which was built on industry-standard tools, with a focus on interoperability and incremental deployment and which didn’t leak confidential information to third parties. A system where one firm could look at its set of agreements with a counterpart and know for sure that:
“What I see is what you see and we both know that we see the same thing and we both know that this is what has been reported to the regulator”