Top 5 facts about Corda Network
Today we formally launched Corda Network. This is an exciting day for us, as we deliver a key part of the Corda vision which we first outlined in the original whitepaper almost three years ago, subsequently updated and supplemented with technical detail. In it, we said:
We envision a future where financial agreements are recorded and automatically managed without error, where anybody can transact seamlessly for any contractual purpose without friction.
The key words were “anybody can transact seamlessly”, and Corda Network is necessary (though not sufficient) to enable this.
In many ways, I hope we are heading towards a constellation model: I liken Corda Network nodes to the expanse of stars, governed by universal laws of nature. And within that, separate business networks are recognisable in the same way that constellations of stars are in the night sky.
I’d like to highlight 5 aspects which define Corda Network: How it is controlled by those who use it, how it provides compatibility, why it offers free transactions for many participants, how it is being used by different industries, and finally, why we chose a Dutch legal entity to govern it.
1. Governed by its Participants
Deployment of blockchains is a significant investment. I always say “this is not like deploying room-booking software”, which can be swapped out for little cost and with little data migration effort; what I mean is that blockchains can reduce reconciliation between counterparties, and enable efficiencies, but only when corresponding business processes have been re-engineered. But this demands organisational change, which takes time. The upshot is blockchain systems need long-term planning and commitment.
Any large investment requires due diligence on who controls the network. R3 designed Corda, and has invested in the network, but is a commercial organisation with shareholders. So there is a tension between fostering the network and deriving profit from it. And a potential participant would recognise this, and be wary that R3 could arbitrarily increase the ‘rent’ of the network at a point in future many participants had committed to using it.
The way around this is to cede control to the participants. R3 decided to focus commercially on enterprise versions of Corda, and has come to realise that success here requires widespread adoption of the Corda protocol, also available as open-source. So Corda Network is operated ‘at cost’, in a very lean way. Network service costs are transparent and justifiable, and will be “open-book”, and the network will accept both enterprise and open-source Corda nodes equally.
And in order for participants to hold control over Corda Network, a Foundation as been set up. It has a simple parliamentary system of a board of directors voting on governance issues, and elected by participants on a one-identity, one-vote basis. We’ve eschewed the idea of different classes of membership put forward by other projects, such as Hyperledger and Enterprise Ethereum, where higher participation fees can guarantee a board seat. Instead, we want to engage the most capable and passionate board members, with the most experience of governance, able to take the long view.
2. Compatibility
A blockchain system is making an important promise: that I know what I see is what you see. For this to be true, all participants transacting together must see the same data, and there must also be an agreed standard for many of the underpinning technological variables. Distributed ledgers are designed to maintain the history and provenance of data, and participants can reason with and independently agree on the changes to the data. If the change is valid according to the business rules of one participant, it must be so for all of them. Furthermore, blockchains have a multi-dimensional challenge: Not only must participants reach consensus over the current state, but they must also have reached consensus over the history which led to the current state. In other words, participants must agree a transaction was valid within the parameters in force at the time of the transaction.
We call this compatibility. It is inherent in all functioning networks, both technical and biological. Richard Brown did a great job of laying this out in his note on the difference between compatibility and interoperability. We’ve tried to minimise the areas of compatibility which are required by Corda, and these are listed in Corda’s documentation. Some of these are likely to be non-controversial, like the maxMessageSize parameter, but others, like the minimumPlatformVersion, may require effort on behalf of participants to stay reasonably in-sync with major versions. As an aside, we clearly can’t expect every participant to upgrade simultaneously, so Corda Network will allow a reasonable window of at least 6 months for upgrades to be implemented. The benefit of this effort is that all participants can reasonably expect to be able to transact with any other, per the original vision.
Compatibility also extends to agreeing the valid set of notaries, or ordering services, for the network in the notaries parameter. Corda states come with a history of a chain of transactions hashed together. For states which move between participants, in particular, we want and require the earlier notarisation (a uniqueness guarantee) to be accepted by later participants. If this wasn’t the case, transactions consuming earlier states might be arbitrarily rejected, leading to a very poor user experience. Again, we want transactions to succeed if all parties concerned have followed the rules in the smart contracts, and notary compatibility ensures this.
While Corda Network Foundation defines the base technical parameters and rules for open inclusion, it makes a conscious effort to get out of the way for business-focused communities deploying applications on top: they can still control their own membership, marketing, pricing, application development and standards.
3. The first 10,000 transactions a year are free
Participants in Corda Network pay a low, standard and stable identity issuance fee, which entitles them to a vote, and covers technical services. Since significant costs are incurred even with a small number of early participants, the Foundation will take a commercial loan so that intial fees are low enough not to be a barrier to entry. In later years, an expected surplus will repay the loan. After that, the fees will fall, since the Foundation cannot distribute a profit.
One of the principles of the Foundation is participants pay for the services they receive. Because there may be a huge variation in how many transactions a frequent trader makes versus an occasional one, we decided to price notarisation separately, on a per transaction basis. That’s fair!
Because collecting low fees is uneconomic, we’ve decided to go further and not charge at all for the first 10,000 transactions a year for each legal entity / identity! This means that the long tail of infrequent participants, for example buyers and sellers just getting started in an open account trade finance network, will pay nothing for transactions, and an absolutely minimal amount for identity issuance. Further details of participation fees and notarisation costs are available on the Foundation website.
4. Not just for finance
Corda was designed to meet exacting requirements from finance use-cases. But at its heart, it’s trying to keep conterparties in consensus about agreements between them, when they don’t trust each other, without relying on central intermediaries.
This underlying scenario is amazingly common in all areas of business, and we’re working with 200+ application partners in areas as diverse as healthcare, oil and gas, manufacturing and supply chain, insurance, and naturally finance.
All of these use-cases are welcome on Corda Network. The distributed nature of interactions, with peer to peer communication and Corda’s need-to-know basis for limited data sharing, means if different use-cases have need for very different qualities of service, they can still exist side by side. This is particularly true if different notaries are used. And we’ve tried to find a standard price for network services which is affordable for all users, regardless of the industry they’re in.
From a governance point of view, we want broad representation on the Foundation’s board for all participants. We don’t want the network to be seen to be “for finance only”, and so there has been a lot of work on diversity. In the steady state, after the one-year transitional board, rules will kick in which prevent a preponderance of directors from one industry (“no more than three directors from any one top-level industry classification”), and they are equally strict about geography and organisation size.
We could have gone down the route of pigeon-holes: For example, “One seat is reserved for Asian Insurance”, but then we might have only one candidate who fits these particular criteria, and that person might not be adequately qualified or passionate.
5. It’s pronounced Stick-ting
I got up on stage at CordaCon 2018 to announce the work we were doing with the Foundation, and was pleased to say we’d decided to set up a “Stich-ting”. But naturally I made the beginner’s error of pronouncing it as it is spelt in English. And of course, because CordaCon is global, there were bound to be many Dutch speakers in the audience. Thanks to them for quickly putting me out of my misery! It’s pronounced “Stick-ting”.
As an aside, we chose this legal entity type for the Foundation because it has a number of characteristics which seemed to make it the perfect fit. It doesn’t have shareholders, or any owners. It took me a while to get my head around this — surely everything is owned by someone, right? It is allowed to act commercially, hold a bank account, receive payments and pay for services. It isn’t allowed to retain a profit (although it can hold a surplus from one year to the next). No shareholders, no profit: No dividends or distributions.
Next: It has a board of directors. It has participants, which mapped nicely onto our concept of network membership by dint of holding an identity.
Finally: It’s Dutch. We love the Dutch! According to findings from global consulting firm KPMG, the Netherlands is the world’s second most economically stable country worldwide.
The Netherlands has a long history as a trading nation, has a stable political system, is part of the EU, everyone speaks many languages, and the Hague is home to the International Court of Justice. Perhaps more importantly, it doesn’t have any of the negative connotations associated with low-tax jurisdictions in the tropics. The Foundation is transparent, and won’t make a profit anyway, so tax treatment is irrelevant.
For more information, and if you’d like to take part in what we are doing, you can read all about the work of the Foundation on the Network website, join the conversation where we hash out policies in public, visit us in London, or email cordanetwork@r3.com.
I’d like to conclude this post with a quote from R3’s CEO, David Rutter:
Corda’s mission has always been to find a way for enterprises to benefit from blockchain’s promise of open, frictionless sharing and global interoperability. The launch of Corda Network and the Corda Network Foundation illustrates this aim perfectly. Participants will be able to build their systems to suit their exact needs and ensure the security of their data, while still benefiting from the advantages of a universal network.
Applications on Corda are seeing wide adoption throughout industries. Corda Network is the next step in bringing these networks together to make these applications even more efficient and effective.
