R3 CEV, the much-watched but opaque startup that brought together more than 60 banks in an effort to build a blockchain-based platform for the financial industry, finally took the wraps off its plans, filing a patent application for software within a new platform it calls Concord.
Executives from the company sat down with us earlier this week and gave us a preview of the product, from which the following was derived.
Concord is a platform that takes its cues from bitcoin, ethereum, and other blockchain-based networks, but changes up key features and concepts to create a platform that takes the best of those other networks and makes it something with which banks will feel comfortable. Indeed, the firm felt that what they’d created was so different from those other platforms it would deserve its own patent protection.
The goal was to come up with a system that would allow banks to operate across a common software platform where important elements, like the programming language, processing power, and data, are shared, but also with key features that allow banks to maintain a level of confidentiality around their operations.
What you end up with is a network that in many respects looks like bitcoin and ethereum, but with significant differences. Concord comprises several separate elements, as the graphic below illustrates, most of which haven’t be shown before. It has an internal program for smart contracts, called Corda, a product it unveiled in April at a Barclays event in London. It also provides the ability for customers to build their own apps on the network. The “Concord Vault” is a program that manages and records transactions. It includes an asset registry, trade registry, even the capacity to record cash balances.
The Vault is in essence Concord’s blockchain, but it comes with a significant difference: transactions are recorded on it, but are not made public. In bitcoin, the innovation is a system that can validate and confirm transactions independent of a “trusted” third-party. The way it does this is by broadcasting every transaction publicly, creating a record that is impossible to alter. R3 executives pointed out to us, and we’ve heard this from other sources as well, that the transparency offered up in bitcoin and ethereum was an absolute deal-breaker for banks.
Making everything public for anybody to see, especially competing banks, was just something financial institutions were not willing to allow. The Vault is R3′s way around the transparency issue. The Vault is Concord’s way of achieving what the firm calls “controlled transparency.” Transactions are validated and confirmed within the mechanism of the vault, but they are recorded only on an individual level, not a global level.
In a white paper describing Corda, R3 notes that it does in some respects resemble ethereum. Both are essentially a “virtual” computer run across a network of computers, the “nodes” that do the actual work of running the network. However, a smart contract on ethereum is literally copied and recorded by every node, whereas in Corda that is not the case. Smart contracts in Corda run on their own and are not electronically connected to the other nodes. Also, of course, while ethereum is designed to host any kind of application for any purpose, Corda is specifically designed for hosting financial applications.
It may seem like a fine-grain point, but the fact that contracts and transactions on Concord are not visible was a key challenge to designing a product the banks would actually use. Getting to that point, in fact, was the entire reasoning behind the firm’s strategy, which involved forming a consortium of banks first, getting their input and tapping their resources, and designing the product as a result of that collaboration. It’s the opposite approach of most startups, which tend to build a product and release, and then look for a customer base.