by mk

An interesting piece that highlights why much of financial service architecture won't end up on a blockchain any time soon.

These bits are interesting to me:

The financial industry is pretty much defined by the agreements that exist between its firms and these firms share a common problem: the agreement is typically recorded by both parties, in different systems and very large amounts of cost are caused by the need to fix things when these different systems end up believing different things. Multiple research firms have postulated that tens of billions of dollars are spent each year on this problem.

In particular, these systems typically communicate by exchanging messages: I send an update to you and just hope you reach the same conclusion about the new state of the agreement that I did. It’s why we have to spend so much money on reconciliation to check that we did indeed reach the same conclusions and more money again to deal with all the problems we uncover.

Now imagine we had a system for recording and managing financial agreements that was shared across firms, that recorded the agreement consistently and identically, that was visible to the appropriate regulators and which was built on industry-standard tools, with a focus on interoperability and incremental deployment and which didn’t leak confidential information to third parties. A system where one firm could look at its set of agreements with a counterpart and know for sure that:

“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”

That’s Corda.

...

A critical piece of the Corda philosophy is that our problem is to ensure that “I know that you see the same details about a shared fact that I see".

But this does not mean that a third party down the road also needs to see it: our consensus occurs between parties to deals, not between all participants.

...

Notice some of the key things: firstly, we are not building a blockchain. Unlike other designs in this space, our starting point is individual agreements between firms (“state objects”, governed by “contract code” and associated “legal prose”). We reject the notion that all data should be copied to all participants, even if it is encrypted.