Corda: A New Distributed Ledger Protocol That Can Kill ACH Transfers For Good

By Ben Heutmaker

Have you ever initiated a bank transfer and it took 5-7 business days to get from one bank account to another? Those are called ACH transfers, and Corda looks to bury that 1970s code once and for all.

Corda is a newly open source project from R3, a financial Technology firm in London, UK. This project was formally designed around (and by) the real-world business problems of financial institutions. From their introductory blog post (which is worth a read):

Corda is a distributed ledger platform designed from the ground up to record, manage and synchronise financial agreements between regulated financial institutions. It is heavily inspired by and captures the benefits of blockchain systems, without the design choices that make blockchains inappropriate for many banking scenarios.

If you’re like most of the world and don’t understand code, definitely read the Corda Introductory White Paper. (If you do read code, check out their github!) In it, the team at R3 describe the high-level concepts of a ‘shared-ledger’ backbone protocol that all financial institutions can use to validate transaction data. It is based around the concept of how banks make an agreement in the world today, but reimagined for a more custom cryptographically-awesome fit. The data is not distributed throughout each and every node of the blockchain like Bitcoin, it is sharded, where only the parties required to partake in the agreement can see the transaction data.

The nature of this protocol means that each business entity is the one who would take responsibility for validating the transactions are in fact correct. However since all the transactions take place in a shared place, in a shared process, with shared resources, all parties can agree upon their perception of that data, and thus the data itself.

This is a departure from the standard “full-node” schema that you might see with Bitcoin, where each and every node has 100% of all the transactions and there’s a race to the finish for validation. While Bitcoin’s blockchain and the proof-of-work/proof-of-stake consensus protocols do have their place in this world, it has never made sense for anything but a fully autonomous system to use a full-node distributed ledger. Corda is not decentralizing banks, they are using blockchain-inspired technologies to help banks continue to operate privately, but in a more reliable and autonomous way.

As of now, private businesses and financial institutions have had to have a form of trust between each other in order to validate information as being correct. Think of a traditional bank notary; a third party who is legally appointed to understand the ins and outs of a contract, and sign as a valid witness for the events that took place. Corda has abstracted this concept with what they call The Concept of Notarization. The institutions that are backing this project would essentially create a peer-to-peer network of Notary Nodes that would sign each transaction, and discard previously signed transactions, effectively preventing the ‘double-spend’ scenario. The peer-to-peer nature of this network allows each bank to look at the last signed transaction and know the exact state of that asset.

Another portion of Corda is what they call the Flow Framework. Blockchains are supposed to record transactions are correct, however most agreements need negotiations on the details before a deal can be struck and recorded as fact. The Flow Framework essentially allows banks to come up with flows together, encompassing all the negotiations necessary to close a deal, and records everything in an immutable way so all parties are on the same page. This pins all aspects/parties of the negotiation down to a cryptographically awesome system of accountability.

Financial institutions will be required to take this protocol and build up their own intermingling systems. But the vision is that this will accelerate bank technology in a way that is scalable and manageable since everything will be built upon the same protocol.

If you want more juicy details check out Corda’s amazing introduction video that explains the overall architecture in a (sort of) simple way: Link.

Also check out their technical road map for what’s to come: Road map.

If you’re a developer and want to get your toes wet, all of their code plugs into the JVM and is explained in much greater detail here: Corda Developers' Tutorial (video)

While Corda is not aiming to decentralize banks, they are moving finance technology forward. This protocol could see the death of ACH transfers, and move your money from your Chase account to your friend’s Wells Fargo account instantly (let’s hope).

~Pass The Piece Team

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