Distributed ledgers like the blockchain system are increasingly setting a new standard for paperwork-free global banking in various financial areas, such as the management of a cash pool for currency exchanges or payments, as well as trade finance.
Spearheading the trend to minimize and possibly eliminate the manual business process in interbank transactions is a technology called “smart contract,” through which records of direct transactions between parties can be protected on a decentralized platform, free of a third party’s intervention or distortion.
Another feature is the traceability of a third party on the network. But such transparency of the technology, realized through platforms like public blockchain Ethereum, may translate into the unwanted exposure of sensitive information for corporate-level use, especially for the banking industry where secrecy in transactions is vital.
Formerly a developer of the Ethereum-powered smart contract in the UK’s Barclays Bank and referring to himself as former “Ethereum evangelist,” James Carlyle, chief engineer of New York-based financial database technology startup R3, said he had to tackle the privacy issue for financial transactions through R3’s new distributed ledger platform, in a recent interview with The Korea Herald.
“We didn’t choose to build a new platform, but we felt we had to,” said Carlyle, who joined R3 in 2015 and was devoted to architecting its digital distributed ledger system in the making, called Corda.
“We felt that existing platforms wouldn’t work in the way that was needed by the industry.”
Even for private blockchain platforms like Hyperledger Fabric, designed to keep transactions faster and cheaper on a centralized ledger platform, information was open to those within the network, instead of being kept secret between a customer and a bank, or between banks.
Instead, Corda is “completely different, because the nodes connect to each other point to point,” he said. This Corda design allows banking business with another party on a ledger without sharing information with a third party.
“For example, I don’t want a third party to know the price that I negotiate with you because it’s sensitive information,” he said. “So Corda was designed to solve that privacy problem.”
Corda’s ability to ensure privacy is giving it an edge over other blockchain-based technologies when it comes to enterprise-level applications, Carlyle said.
“If you want to run a land registry, and if you want the ownership of every piece of the land to be completely public, that’s great,” he said. “But for commercial use, for corporate issue, organizations don’t want their information to be made public to other competitors.”
He also highlighted Corda’s higher scalability, or the capacity to handle a growing amount of transactions, compared to other blockchain technologies. R3’s distributed ledger also streamlines the screening process of the oversight bodies, because a regulator can see information on the ledger “almost in real time and not three months or six months later, which is what happens at the moment,” Carlyle said.
The technological edge stemmed from partnerships with over 200 business entities, ranging from financial institutions, regulators and associations to tech firms across the world, including Hewlett Packard Enterprise, Intel and Microsoft.
Also engaged in the network are Korean firms, including five commercial banks -- Nonghyup Bank, KEB Hana Bank, KB Kookmin Bank, Woori Bank and Shinhan Bank -- and tech firms including LG CNS and Coinplug.
R3 is eyeing commercial deployment of the first applications based on Corda -- known as CorDapps -- by early this year, which will feature a global cash pool management using its own digital representation of money on the ledger and functions for trade finance, among hundreds of other applications.
Carlyle said the R3 consortium is on the path to binding banks together through Corda software.
“One of the things that R3 can do, because it has a global network with banks, is bring banks together in different regions,” he said. “Normally banks don’t have relationships with each other, but the point of blockchain is to share information and make the process more efficient.”
Formerly at the UK bank Barclays, Carlyle was devoted to building corporate banking infrastructure using Ethereum starting 2014.
“Once or twice in my career I’ve seen technology come along that’s so powerful that I want to work on it full time,” he said. “For me, blockchain technology and blockchain ideas are as powerful as the internet.”
R3 is seeking to increase its presence across Asia, such as through the upcoming CordaCon Tokyo 2018 slated to be held on March 7.
Moreover, for the Bank of Korea’s recent mock test, R3 provided the Corda platform in the making for interbank money transactions from September 2017 to January this year.
In a statement on Feb. 13, the BOK acknowledged that, in terms of security and inclusiveness, the Corda-powered platform had an upper hand over the conventional BOK network without blockchain technology.
But the central bank also noted that the Corda infrastructure was found to have shown slower speed in transactions compared to the traditional network. It was also unable to fix server breakdowns if they happened.
Carlyle declined to directly comment on the issue. But according to R3, the updated version as of February -- still in production -- has been seen to “increase the number of parallel execution threads” in transactions. The new version will also put in place proper enterprise-wide backup and restoration processes, it added.
Now that R3 does not operate a public blockchain, R3 does not raise funds through initial coin offerings, where buying encrypted coins or tokens translate into an investment in a firm.
Instead, the R3 consortium has drawn investments through conventional means, including a Series A investment valued at $107 million in May 2017.
By Son Ji-hyoung