Financial Cryptography

Corda Day - a new force

Today is the day that Corda goes open source. Which will be commented far and wide, so not a lot of point in duplicating that effort. But perhaps a few comments on where this will lead us, as a distributed ledger sector.

For a long time, since 2009, Bitcoin dominated the scene. Ethereum successfully broke that monopoly on attention, not without a lot of pain, but it is safe to say that for a while now, there have been two broad churches in town.

As Corda comes out, it will create a third force. From today, the world moves to three centers of gravity. As with the the fabled three-body-gravity problem of astrophysics, it's a little difficult to predict how this will pan out but some things can be said.

This post is to predict that third force. First, a recap of features, and shortfalls. Then, direction, and finally interest.

Featurism. It has to be said again and again (and over and over) that Corda is a system that was built for what the finance world wanted. It wasn't ever a better blockchain, indeed, it's not even a blockchain - that was considered optional and in the event, discarded. It also wasn't ever a smarter contract, as seen against say Ethereum.

Corda was what made sense to corporates wanting to trade financial instruments - a focus which remains noticeably lacking in 'the incumbent chains' and the loud startups.

Sharing. In particular, as is well hashed in the introductory paper: Corda does not share the data except with those who are participants to the contract. This is not just a good idea, it's the law - there are lots and lots of regulations in place that make sharing data a non-starter if you are in the regulated world. Selling a public, publishing blockchain to a bank is like selling a prime beef steak to a vegetarian - the feedgrain isn't going to improve your chances of a sale.

Toasting. Corda also dispenses with the planet-warming proof of work thing. While an extraordinary innovation, it just will not fly in a regulated world. Sorry about that, guys. But, luckily, it turns out we don't need it in the so-called private chain business - because we are dealing with a semi-trusted world in financial institutions, they can agree on a notary to sign off on some critical transactions; And -- innovation alert here -- as it happens, the notary is an interface or API. It can be a single server, or if you feel like going maximal, you can hook up a blockchain at that point. In theory at least, Corda can happily use Bitcoin to do its coordination, if you write the appropriate notary interface. If that's your thing. And for a few use cases, a blockchain works for the consensus part.

These are deviations. Then there are similarities.

Full language capability. Corda took one lead from Ethereum which was the full Turing-complete VM - although we use Java's JVM as it's got 20 years of history, and Java is the #1 language in finance. Which we can do without the DAO syndrome because our contracts will be user-driven, not on an unstoppable computer - if there's a problem, we just stop and resolve it. No problem.

UTXO. Corda also took the UTXO transaction model from Bitcoin - for gains in scaleability and flexibility.

There's a lot more, but in brash summary - Corda is a lot closer to what the FIs might want to use.

Minuses. I'm not saying it's perfect, so let me say some bad things: Corda is not ready for production, has zero users, zero value on-ledger. It has not been reviewed for security, nor does that make sense until it's built out. It's missing some key things (which you can see in the docs or the new technical paper). It hasn't been tested at scale, neither with a regulator nor with a real user base.

Direction. Corda has a long long way to go, but the way it is going is ever closer to that same direction - what financial institutions want. The Ethereum people and the Bitcoin people have not really cottoned on to user-driven engineering, and remain bemused as to who the users of their system are.

Which brings us to the next point - interest. Notwithstanding all the above, or perhaps because of it - Corda already has the attention of the financial world:

• Regulators are increasingly calling R3 for expertise in the field.
• 75 or so members, each of which is probably larger than the entire blockchain field put together, have signed up. OK, so there is some expected give and take as R3 goes through its round process (which I don't really follow so don't ask) but even with a few pulling out, members are still adding and growth is still firmly positive.
• Here's a finger in the air guess: I could be wrong, but I think that as of today we already have about the same order of magnitude of programming talent working on Corda as Bitcoin or Ethereum, provided to us by various banks working a score or more projects. Today, we'll start the process of adding a zero. OK, adding that zero might take a month or two. But thereafter we're going to be looking at the next zero.
• Internally, members have been clamouring to get into it for 6 months now - but capacity has been too tight because of the dev team bottleneck. That changes today.

All of which is to say: I predict that Corda will shoot to pole position. That's because it is powered by its members, and it is focussed to their needs. A clear feedback loop which is totally absence in the blockchain world.

The Game. Today, Corda becomes the third force in distributed ledger technologies. But I also predict it's not only the game changer, it's the entire game.

The reason I say that is because it is the only game that has asked the users what they want. In contrast, Bitcoin told the users it wanted an unstoppable currency - sure, works for a small group but not for the mass market. Ethereum told their users they need an unstoppable machine - which worked how spectacularly with the DAO? Not. What. We. Wanted.

Corda is the only game in town because it's the only one that asked the users. It's that simple.

Posted by iang at November 30, 2016 07:15 AM