Key Concepts

The Key Concepts section provides a detailed look at Corda 5.1. This page gives an overview of Corda 5.1 and contains the following:

Why Decentralized Applications?

In recent decades, business processes have been transformed via the progressive adoption of new technologies. Each step has brought improvements and economies in terms of speed, capacity, connectivity, communication, and predictability. Systems have grown to the extent that single instances can no longer successfully deliver adequate solutions, leading to the rise of decentralization and a move to the cloud.

However, these solutions are all limited by an implicit boundary that exists, yet is rarely recognized or included in architecture diagrams - trust. Distributed systems are designed to operate within a single trust zone where updates are applied and accepted, mutating the global state, without question. For example, when a bilateral agreement is executed between two parties, both must run their own reconciliation system to ensure that the exchange occurred and was done correctly. This adds friction to all transactions and adds considerable cost. The challenge in solving this is that the two parties in our example have no ability to simply accept the word of the other party, without costly reconciliation. Decentralized applications are the solution to this problem.

What is DLT?

DLT stands for Distributed Ledger Technology. It is a digital system for recording, storing, and processing digital data in a decentralized way across a network of computers, perhaps in different locations and involving multiple organizations.

Decentralized applications are a new paradigm of application where the source of truth, represented by the application’s state, can cross trust boundaries without the requirement for a central, overarching, point of control. This is achieved through the use of DLT, which allows for the creation of stateful data that can be updated by any number of interested parties through the reaching of consensus between them that a proposed change is valid.

The technology uses cryptographic techniques to secure data and validate modifications. The validity Simply gathering the required signatures is not enough to commit a transaction to the ledger. As well as being unique, it must also be valid. This means that the proposed transaction must be signed by all the required parties and be contractually valid. of an update or modification is determined by a set of rules established within an application domain, which all members Corda identity that has been granted admission to a membership group. Synonym for a virtual node or group member. recognize as binding when an update is proposed. An update can only be applied when there is consensus within the domain that it is a valid proposal. These rules are expressed as smart contracts Digitizes agreements by turning the contract terms into code that executes automatically when the terms are met. that are intrinsically linked with the chosen representation of the global state. Every participant in the network has a view of the shared global state of data (the extent of that view depends on its visibility restrictions), which is updated in real-time as changes occur. This ensures that the data is accurate, transparent, and tamper-evident.

Blockchain is one popular type of DLT that is commonly used for cryptocurrencies such as Bitcoin, but there are many other types of DLT besides blockchain.

What is Corda’s take on DLT?

Corda is a distributed application platform for the creation and operation of decentralized applications, which are written using a rich Java API. These applications are created using standard Java development tools and packaged using Corda tooling. Once packaged, applications are deployed onto Corda, which executes both applications and ledger update workflows on behalf of organizational entities.

There are some approaches that differentiate Corda from other DLTs. Identity (along with associated permissions) and privacy are especially important in order to serve the needs of highly regulated financial institutions. The following summarizes what Corda does differently:

• Identity - Knowing who you are transacting with and knowing that their identity was attested to a given level of assurance is important for establishing trust. This is especially the case for regulated industries that need to perform some level of KYC (Know Your Customer). Often this is because of anti-money laundering (AML) legislation that requires you to know who you are transacting with, but it can also be for other reasons, such as avoiding the legal consequences of engaging with an entity on a sanction list. Identity validation is handled when onboarding a participant identity to a business network. Many other DLT and blockchain systems offer anonymity as a feature, especially for cases where true censor-resistant mutation of some global state is a requirement. However, for use cases where trust is absolutely critical, Corda layers its platform with the concept of granting permissions to identities. These permissions can be granted during onboarding of identities and it is simply a case of attesting that supplied credentials prove that an entity is who they claim to be. Corda does not mandate specific levels of attestation, but rather each network is able to set its own rules. Without permissions, access to the state of a network and other members of that network is impossible.
• Privacy - People who want to communicate with each other on Corda can install the same set of distributed applications, known as CorDapps Corda Distributed Application. A Java (or any JVM targeting language) application built using the Corda build toolchain and CorDapp API to solve some problem that is best solved in a decentralized manner. . These define the parameters of their interactions and exchange information and assets; all within the bounds of what the network operator has permitted around rules for visibility of states. In these private networks, only the parties involved can see the details of that state. This is important in financial services, where confidentiality is required. Unlike more public DLT offerings, where the entire ledger state is shared between all members, Corda enables the restriction of sharing to those who “need to know” and have visibility of updates. This removes the ability for information to leak out through the observation of anonymous state changes in more public systems where, despite the potential anonymity of participants, the entire state is visible.
• Compliance - Corda, being designed with the financial services industry in mind, works seamlessly with existing financial systems, allowing banks and other financial institutions to integrate it into their existing processes.
• Scalability - Corda is designed to be highly scalable, allowing it to handle large volumes of operations without sacrificing performance or security. This is especially suitable for the financial services industry, which processes huge volumes of financial transactions in short periods of time.
• Consensus mechanisms - Corda uses smart contracts to automate complex agreements between parties. These contracts are written in common programming languages, Java and Kotlin, making them easier to create and manage than some other DLT platforms. Smart contracts on Corda are compatible with existing and future regulations and grounded in legal constructs. They record and manage the evolution of agreements (for example, financial agreements) and other shared data between two or more verified and identifiable parties. Supervisory and regulatory bodies can be given access to the network as observers to verify the contract.
• Workflow - Corda flows are an important feature of Corda. They help to simplify and automate often complex business processes on the Corda network. Flows define the steps required to complete a specific business process, such as a trade or a settlement. Flows use a messaging system to allow communication and updates between relevant parties. Flows are designed to be modular, meaning that each step in the flow can be executed independently and in parallel with other steps, which makes Corda efficient, with fast processing times.

Use Case Examples

Corda was originally designed as a distributed ledger A database of facts that is replicated, shared, and synchronized across multiple participants on a network. and system of record for the financial services industry. Within financial markets, Corda can be used to automate trading and settlement processes and reduce the need for reconciliation. Additionally, Corda’s smart contracts Digitizes agreements by turning the contract terms into code that executes automatically when the terms are met. make it easy to automate complex financial agreements between parties. Corda is used in financial markets for use cases such as:

• Financial Market Infrastructure (FMI) - Corda accelerates and automates settlement processes, thereby removing the need for costly and risky reconciliation processes, reducing credit, and counter-party risk and default risk arising from unsettled trades.
• Central Banks - Corda enables dematerialization (also referred to as tokenization or digitalization) of central bank money into central bank digital currency (CBDC). This is applied to the replacement of RTGS (real-time gross settlement) systems, cross-border payments, and delivery versus payment (DvP) scenarios.
• Banks - Corda facilitates the overnight reconciliation of inter-bank transactions and financial asset management, including issuance, trading, and custody of dematerialized financial assets such as bonds and equities. Also, it facilitates the issuing of private money (as fiat backed digital currency) for inter-book cross-border transactions and delivery versus payment (DvP) scenarios.
• Exchanges - Corda manages the lifecycle of digital financial assets and automating processes such as issuance, trading, settlement and custody.
• FinTechs - Corda enables the building of solutions for the digitalizing of traditional assets, such as bills of lading, letters of credit, and precious commodities in order to increase efficiencies and reduce business risk.

Corda’s capabilities are also applicable across a broader set of markets and industries where there is a need for multi-party workflows managing transactions, data, and processes to establish a shared view of a distributed set of data, i.e. I see what you see. These include industries such as:

• Insurance - Insurance companies use Corda to automate the settlement of claims and other transactions. Corda’s smart contracts make it easy to enforce the terms of insurance policies and automate the claims process.
• Supply chain management - Corda can be used in supply chain management to track goods and ensure that they are authentic and have not been tampered with. Corda’s privacy features make it well-suited for managing confidential information in supply chain transactions.
• Healthcare - Due to Corda being strong on privacy and confidentiality, it can be used in the healthcare industry to manage and provide access to patient data securely and ensure that patient privacy is protected.