The practicality of blockchain

In its almost 13 years of existence, blockchain’s potential to create a decentralised financial system has often been hyped well beyond its practicality. The technology was heralded by some as the end of central banks, government authorities and fiat money. And now, the Web3 movement, a next-generation web that includes decentralisation, blockchain technologies and token-based economics, has reached quasi-religious zeal. 

However, R3’s long standing chief technology officer, Richard Brown, has never let hype and unrealised potential frame his work as one of the leading voices in the distributed ledger space. 

“There’s a difference between a future advantage and a benefit,” he says. “A feature of a protocol is that it is decentralised —
it’s barely an advantage and it’s certainly not a benefit.

“I never understood why people were so focused on talking about decentralisation … [it’s] a means to an end, not the end in itself.”

R3 was started in 2014 by a consortium of nine global banks to explore distributed ledger technology (DLT). That consortium soon grew to 60 banks and includes names like Citi, BBVA, HSBC, and CTBC Bank among others. In 2015, R3 evolved into an enterprise software and services firm with the support of 60 banks. By 2016, the firm launched Corda, which they claim was the world’s first permissioned open-source DLT platform. 

Joining R3 in 2015, after a 15-year career at IBM, Mr Brown is now chief technology officer and leads the Corda team. The latest generation of the private, enterprise blockchain, Corda 5, is currently in developer preview.

Corda, a permissioned, private blockchain, is used by several global banking projects. Most recently, Goldman Sachs, Santander and UBS trialled a repo settlement using the Fnality blockchain settlement platform and the HQLAx collateral management system, which uses R3’s Corda. The trial established interoperability with Fnality’s enterprise Ethereum-based blockchain. 

Mr Brown sits in an interesting place within the wider decentralised finance space. This year saw the emergence of so-called ‘crypto winter’, where the price of cryptocurrencies fell and remained low for an extensive period. It also saw the ongoing saga around the collapse and bankruptcy of the crypto exchange, FTX, which lost its users billions of dollars. 

Back in 2009, when blockchains were invented to support the potential of bitcoin, the public blockchains that emerged were about solving political problems, Mr Brown notes, with permissionless transfer of value and censorship-resistant store of value. 

“All this stuff about your personal autonomy and self-sovereignty and so forth — I could never really map that back into the technology,” he says. R3 looks at how blockchain is applicable to the business. 

“There’s a reason firms [like R3] are using slightly different architectures,” he adds. “Blockchain protocols are slow, expensive and public.” But with Corda, “we’ve proven it can go fast, can process the entire volume of a major stock market … there’s no mining and it’s private.”

Enterprise DLT has also seen failures. In November, the Australian Securities Exchange (ASX) cancelled its much-delayed blockchain replacement to its legacy Clearing House Electronic Subregister System, incurring a charge of A$250m ($168m). 

Much of the community is now looking inward “to learn the lessons from the ASX disaster”, says Mr Brown. 

However, from where Mr Brown sits, recently he saw “the best part of the third of a billion Swiss francs bonds issued by UBS” on Switzerland’s SIX Digital Exchange and he saw a new digital exchange emerge from the Depository Trust and Clearing Corporation, as well as successful interoperability projects, such as the recent repo settlement trial from Goldman Sachs, Santander and UBS.

“I think for what we’re doing, ‘enterprise blockchain’ is not a great term,” he says. “It’s all about places where multiple firms need to do something more efficiently — again, I tend to revert to uninspiring terminology, but your market-level business processes, market level inefficiencies, that’s what we’re focused on.”

Working with various private enterprise blockchains to enable interoperability takes coordination with collaboration, says Mr Brown. “There’s an effort to get everyone moving in the same direction, which is why it takes time,” he adds. “It doesn’t always feel that progress is being made, even though there actually is.”

Mr Brown points to Italy, where almost every bank reconciles accounts using the Corda blockchain, previously it was done manually. “That was a diligent effort by a very small number of people,” he says. “The Italian Banking Association saw the opportunity, but there were so many barriers that had to be overcome.”

Despite a few high-profile disasters, Mr Brown is optimistic. In the past, it felt like “people didn’t want to ask the hard questions, these projects just carried on without any challenge … and didn’t actually have proper intellectual discussions and test hypotheses,” he says. Now that “critical thinking” has returned, “good projects now have the space to execute”, he adds.