Richard Brown CTO of R3 Corda on Enterprise Blockchain, Regulated DeFi and Staying Ahead of the Curve

Richard Brown, Chief Technology Officer at R3, the company behind Corda, is a leading authority on distributed ledger systems and architectures. Corda is a private and permissioned distributed ledger built for enterprises. A software company that at inception was a consortium of the world’s biggest financial institutions, R3 is uniquely placed to understand how blockchain technology can be adapted for real-world business clients.

As CTO at R3, this means that Richard is at the forefront of innovation in the enterprise blockchain space.

In a recent interview for Ledgernomic, Richard discussed a number of different issues including the benefits that Corda offers over traditional financial systems and the challenges of interoperability between different blockchain networks.

For a primer on Corda see: What is Corda?

What benefits does Corda offer over traditional financial systems for banking and capital markets?

While banks and financial institutions have their own internal systems that work quite well, a number of problems exist that DLT technology, such as Corda, can fix. Today, transactions between financial institutions and counterparties, or their customers, are recorded at least twice.

Richard gives the example of a loan, where both the borrower and lender record the transaction in their systems separately. The information starts out the same, however over time changes are made and due to human error or the systems being coded ever so slightly differently, it gets “subtly but insidiously out of sync”.

According to Richard, Corda solves this problem by allowing institutions to be “on the same page,” keeping their systems in sync and eliminating the need for reconciliation and the risks associated with it. With Corda, information is recorded only once, in a system of record or ledger shared by all the participating institutions.

The prize that Corda aims for, according to Richard, is the replacement of legacy systems with industry-level shared systems of record that are correct and consistent by construction.

Can you explain the concept of notaries and how they prevent double spending?

In Corda we don’t just manage tokens, we manage contracts, we manage legal agreements, derivatives, swaps… any kind of financial instrument you can think of. They have very much the same problem [as tokens] – ‘How do I know the version I’m looking at is the current one, as opposed to the previous version? How do I know, if two parties to a contract tried to update it at once, who updated it first’?… The notary is Corda’s way of doing that.

While Bitcoin uses energy-intensive mining to solve the double-spending problem, Corda uses “notaries”. Notaries are essentially the permissioned nodes on the Corda blockchain.

Richard explains that Notaries are an important aspect of businesses using blockchain technology because they provide an extra layer of protection. While validators on most public blockchains are anonymous (which is not practical from a business standpoint), a notary is an identifiable entity that validates a transaction and can therefore be held accountable. Richard points out that it’s essential for businesses to be able to identify the responsible party if there are errors on the network.

How has the development of Corda been influenced by the needs and wants of its enterprise clients?

Richard points to the fact that R3 started as a consortium of the world’s largest banks, and it continues to listen to its customers’ needs and wants as it develops Corda. While the company watches public cryptocurrency and blockchain networks to learn about relevant experiments and innovations, it aims to keep innovating in the space of decentralized workflow between regulated entities. Corda’s unique features make it genuinely novel in some respects and valuable to its market.

The reason why it [Corda] meets the needs of banks so well, in my opinion, is that we genuinely listened over an extended period of time to the problems they had. We didn’t just say ‘hey blockchain’s cool, let’s see whether we can force it down their throats in inappropriate ways.

How does Corda plan to stay ahead of the curve in terms of new advancements in blockchain technology?

In order to stay ahead Richard says that first, it’s essential to identify what Corda’s market is and who the company is competing with.

While Corda is competing in some respects with the public blockchain market, Richard points out that some of the work that Corda does is “genuinely novel”. The decentralized workflow between regulated entities, for example, is unique and something that no one else does.

Corda listens to its customers and tries to understand what they are doing with the product, for example, the customer may be using it in a way that R3 had not originally envisaged.

“One way to stay ahead is to almost look backwards and see what customers are using it [the product] for.”

Richard also points out that it’s important for R3 to look elsewhere in the technology space to gauge where innovation is going to come from.

Do you see Corda playing a role in the future of DeFi?

Richard tells us that DeFi in its current form makes it very difficult for regulated institutions to engage with, even though the “technological innovation and rate of progress is something that everyone in the financial markets is looking at and would like to be able to adopt”.

Because of this Richard says we’re seeing the emergence of what might be called “regulated DeFi” or “institutional DeFi” – where the key DeFi principles are used in a regulated way.

Institutional DeFi is certainly something that Corda will be playing a role in. Corda’s composability of contracts is a key feature that will be coming, and it already interoperates with the Ethereum Virtual Machine (EVM) ecosystem. The next generation of Corda will integrate the principles of DeFi in a way that is compliant with relevant regulations and can be used by institutional clients.

Interoperability Challenges and Corda’s Solutions

Interoperability is a top priority for r3 and ensuring that they can connect with other networks. However, Richard notes that they must do this in a way that “respects blockchain principles, and doesn’t require the addition of more third-party intermediaries, and which is reliable and compliant with the appropriate regulations”.

The short-term requirement for R3’s customers is to coordinate transactions between Corda-based networks and EVM-based networks. Richard notes that Corda can swap assets between an Ethereum network like Hyperledger Besu and Corda reliably and securely.