In the online Fintech course that I’m currently doing, every other course video is about blockchain and the possibilities it offers. Earlier this year, I wrote about blockchain, trying to demystify some things I’d heard about it up to that point. If anything, watching my course videos with Blockchain experts such as Shaul Kfir, CTO at Digital Asset, has raised my curiosity about blockchain technology even more. In the past week alone, I came across two interesting blockchain related developments, which caught my eye: (1) Visa B2B Connect and (2) R3 Corda:
Visa B2B Connect
Fig. 1 – Visa B2B Connect diagram – Taken from: https://usa.visa.com/visa-everywhere/innovation/visa-b2b-connect.html
Recently, Visa has started partnering with Chain, a US-based blockchain technology company, to create a proof of concept called “B2B Visa Connect” (see Fig. 1 above). Instead of building a more ‘correspondent’ type of integration between Chain’s core blockchain technology and Visa’s infrastructure, it’s looking to create a peer-to-peer relationship between banks. The essence of Chain’s blockchain network is a shared ledger that allows banks to move assets more securely and efficiently.
I listened to Adam Ludwin, Chain’s CEO/Founder, explaining on a recent podcast that Chain are effectively building “a business-to-business payment network.” Adam highlights that, in essence, Chain are applying cryptography to financial services. As result, entities – whether’s its financial institutions or customers – can have direct control over their financial assets, using a (private) cryptographic key. Adam stresses that there’s no single currency on the different Chain networks. Instead, the currency is specific to the currency issued by the participants of the network in question.
The main thing that I’m taking away from Visa B2B Connect is that Chain is looking to “digitise Visa’s existing currency” by building blockchain technology for Visa from scratch, aiming to design an architecture to solve Chain’s specific problems in mind. In contrast, the likes of Digital Asset, Ethereum, R3 and Ripple, are more like existing architectures which can be modified to meet the needs of specific financial institutions and their customers.
Last week, R3 – a consortium of 75 banks – announced the introduction of an open source blockchain, to be used by banks. It was announced as “distributed ledger designed for financial services”, called Corda. The ledger hasn’t been built yet, but it was interesting to already get a flavour of its underlying principles:
- Corda has no unnecessary global sharing of data: only those parties with a legitimate need to know can see the data within an agreement
- 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
Fig. 2 – Overview of Corda’s underlying principles – Taken from: http://www.r3cev.com/blog/2016/4/4/introducing-r3-corda-a-distributed-ledger-designed-for-financial-services
The other thing that I took away was the business problems that R3 Corda is looking to solve:
- Bank A and Bank B agree that Bank A owes 1M USD to Bank B, repayable via RTGS on demand.
- This is a cash demand deposit
- Bank A and Bank B agree that they are parties to a Credit Default Swap with the following characteristics
- This is a derivative contract
- Bank A and Bank B agree that Bank A is obliged to deliver 1000 units of BigCo Common Stock to Bank B in three days’ time in exchange for a cash payment of 150k USD
- This is a delivery-versus-payment agreement
- … and so on…
Fig. 3 – Business problems R3 Corda is looking to solve – Taken from: http://www.r3cev.com/blog/2016/4/4/introducing-r3-corda-a-distributed-ledger-designed-for-financial-services
In essence, R3 Corda is looking to significantly improve the way in which banks share and managements agreements between them. The goal is remove any duplication of data or confusion about inter-bank agreements or transactions. Given the immutable nature of blockchain technology, it’s easy to see why banks are collectively developing Corda:
“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”
Main learning point: Understanding how blockchain applications are built to solve specific problems (R3 Corda) or improve existing experiences (Visa B2B Connect) really helps in painting a better picture of the tangible value that blockchain technology will deliver.
Related links for further learning: