R3 consortium’s blockchain initiative: What makes Corda different

Rage Review : R3 Consortium has been aggressively recruiting large financial institutions since its inception, attracting the attention of many people around the world. The recent Corda initiative has also attracted much attention. This article focuses on the core content of Corda. From the blog post of Richard Brown, CTO of R3, we can see that its blockchain research has become more detailed, increasing practicality and reducing system access restrictions. On the basis of continuing the original advantages of blockchain, it has laid a practical foundation for the practical adoption of this technology, including the construction of dedicated regulatory nodes and the adoption of human language legal documents. This article explains in detail the uniqueness and development status of Corda. The content is relatively large, but it is worth reading carefully. I believe you will see the hope of blockchain technology really landing.

Translation: Annie Xu

R3, a consortium of financial institutions working on blockchain-based solutions to improve financial services infrastructure, recently released the latest news on Corda.

R3 has attracted the attention of the fintech and financial communities since it was founded six months ago. Its recent announcement shows Corda’s specific plans to serve the financial industry and how it differs from other financial industry blockchain initiatives.

The main mission of R3 and other initiatives is to save money, reduce transaction errors and significantly increase settlement speed.

What is Corda?

Richard Brown

R3 CTO Richard Brown said Corda got its name from two sources: the first part sounds like "accord" and the second part comes from the definition of a "chord," the shortest line between two points on a circle. The circle represents the banks in the R3 network.

Brown summarized Corda’s key features in an R3 blog post:

1. No redundant global data sharing: only parties with legitimate needs can access data in accordance with the agreement;

2. Corda writing and configuration are circulated among enterprises, without a central controller;

3. Corda reaches consensus at the level of individual transactions between enterprises, rather than at the system level;

4. The system design directly supports the supervision observer node;

5. Transactions are verified directly by the two parties to the transaction, rather than by a large group of unrelated validators;

6. Support multiple consensus mechanisms;

7. Records a clear connection between smart contract code and human language legal documents;

8. Created with industry standard tools;

9. No original password.

Once the code is complete, Corda will be open source.

Blockchain Reality vs. Blockchain Hype

Richard Brown said that after joining R3 from IBM in September, he wanted to ensure that he did not fall into the trap of blockchain hype and realized that he could not lose his judgment or ignore any important engineering. Any solution should be based on customer needs, not some "cool technology fragments."

In early 2015, the financial industry collectively “decided” that blockchain was the way forward. But according to Brown, the reasons were subtle and many people missed them.

The smartest thing about Bitcoin is the way it illustrates a business problem, which is how to build a system where users can spend their own currency without restrictions. Once this problem is solved, the design becomes a non-issue. If you want to spend your own currency, you can't have central control and a bunch of validators.

You realize that you need something like proof of work for voting, “Once you figure out the logic, the whole design may be formed (blockchain, the need for mining, block rewards, and even the UTXO transaction model, etc.)”

The real purpose of blockchain

Brown described blockchain as a tool for solving real problems.

He realized that many in the financial industry chose to accept everything about the blockchain even though they knew that the Bitcoin solution package was not accepted for many reasons, including that private deployments did not need its proof-of-work mechanism. There were even companies supporting solutions that made no sense for the problems they were trying to solve.

Blockchain’s unique services

Brown's understanding of the services provided by blockchain is as follows: The blockchain technology services underlying private variants such as Bitcoin and Ethereum include five main aspects: consensus, validity, uniqueness, immutability and authentication.

The most important feature of blockchain is consensus. Regarding Bitcoin, everyone has a common understanding of what unspent Bitcoin revenue is and what conditions are required to consume Bitcoin. These understandings are shared by all full node users.

Legitimacy is a property related to consensus that helps people understand whether a proposed update is legitimate. Legitimacy defines the direction of the rule.

The uniqueness service helps users understand which shared information update is valid in a specific situation. The "anti-double spending" feature of the blockchain provides this service.

Immutability means that once a piece of data is submitted, it cannot be changed. Brown points out that this feature may be a bit misleading, because data can actually be changed. What it really means is that once data is submitted, no one can re-transact by modifying data that other stakeholders have already approved. The blockchain's approach is to make transactions follow historical transaction results; blocks follow the original information content of the blockchain.

The final feature is authentication, where one private key corresponds to one system behavior; this is different from the “superuser” account of traditional enterprise systems.

The new feature of distributed ledgers is the emergence of a platform that is shared by skeptical participants in the network, allowing them to reach a consensus on the common information.

What Banks Need

The information shared by financial institutions includes the following types of agreements:

1. Bank A and Bank B agree that Bank A owes Bank B a certain amount of currency and can pay it by RTGS if necessary;

2. It is a cash demand deposit;

3. Bank A and Bank B mutually agree that each other is a party to a credit default swap with certain characteristics;

4. It is a derivative contract;

5. Bank A and Bank B agree that Bank A must transfer a certain number of common shares to Bank B within three days and receive a certain amount of cash;

6. This is the delivery-versus-payment agreement (DVP).

The financial industry defines the agreement by companies that share a problem, and the parties to the contract record the content of the contract in their own systems. When different systems ultimately decide to trust different information, the need to modify the information will incur high costs. This cost is as high as billions every year.

The two systems communicate through information exchange, and a lot of resources are used to reconcile the parties to the contract to ensure that the parties reach the same conclusion.

How Corda is different

Brown saw a need for systems to record and manage financial agreements between businesses, as these agreements were established using industry-standard tools and subject to the necessary regulation.

The system focuses on interoperability and incremental deployment, without disclosing confidential information to third parties. Firms can review agreements with counterparties and ensure that both parties see the same information and report it to regulators.

Corda includes the five characteristics of blockchain: consensus, validity, uniqueness, immutability and authentication.

Brown pointed out that Corda is not building a blockchain, but rather a single agreement between companies.

The focus is on the agreement. Corda recognizes the need to incorporate legal language from the beginning. Because disputes will always exist, the dispute resolution system should be built from the beginning.

Corda also includes the role of managing financial agreements. The system must simplify the writing of enterprise logic and be compatible with existing code. It must also support the coordination of behavior between enterprises involved in the agreement.

Corda is not a solution for all problems, but rather for certain use cases. Corda continues to collaborate with partners developing complementary platforms. There are still many design and research topics to be explored.

Brown said Corda does not compete with any company or copy their work.

Is R3 a paradigm shift?

The update of the R3 initiative dispels the suspicion of the crowd that calls it a covert operation.

Patrick Byrne

Overstock.com CEO Patrick Byrne has warned that the R3 consortium is trying to outlaw corporate competition, claiming that Wall Street firms are banding together to use regulation to ensure their blockchains are the only legitimate ones in the future.

Wall Street's leading practices will have a profound impact on whether blockchain technology takes root in the financial industry.

Mark Smith, CEO of Symbiont, a startup focused on building smart contracts, said the question facing financial companies is whether they should come together to create a standardized consensus model, with everyone following a common specification or working on their own version, and then letting the market determine a common standard consensus model.

Choosing the right consensus model is "very important, and if standardization is required," "the financial industry should pay attention immediately." In addition, the competition process itself will bring about the right model. "All different ideas should flourish, and the market should determine the results."

Other initiatives are in the works

Financial institutions are exploring similar blockchain initiatives.

Among them is the Hyperledger Project, which includes many companies such as IBM, JPMorgan Chase, Cisco Systems Inc., and Digital Asset Holdings. It uses many open source software approaches, including encrypting all transaction information and sharing it with all members of the network.

Recently, R3 announced a new round of personnel appointments, including former Barclays Bank chief engineer James Carlyle and bitcoin core developer Mike Hearn.

Microsoft has also joined the R3 consortium, and there are now more than 40 member companies.