Blockchain Firm R3 Files for a Patent as Fintech Race Heats Up -- 2nd Update

By Paul Vigna 

R3 CEV, a startup working to build new Wall Street infrastructure using "blockchain" technology, filed for a patent Tuesday covering software behind the new project.

The patent application is the New York firm's first, shedding some light on what has so far been a widely followed but opaque firm.

R3, which launched in September 2015, named the project Concord for the harmony it hopes to build among more than 60 banks participating in the project. The consortium originally started with nine multinational banks. The group currently includes Barclays PLC, Goldman Sachs Group Inc., and J.P. Morgan Chase & Co.

The goal of the firm has been to create standards for financial services based on "blockchain" technology, the open-ledger system used to trade the virtual currency bitcoin. It hopes to sell the product to the participant banks and others.

Although Concord does resemble numerous other technology platforms working on blockchain technology, R3 felt the software behind it, known as Corda, offered enough unique features to justify a patent.

R3 essentially has built is something that looks in some respects like bitcoin, but with significant differences to appeal to banks.

Concord aims to be a universal platform connecting bank operations within firms and across rival firms. It is aimed at digitizing and speeding up so-called middle- and back-office functions, like clearing and settling securities trades, registering a variety of assets and keeping track of cash balances. One other difference between Concord and bitcoin: Concord doesn't have a coin.

If it comes together, Concord could help banks streamline cumbersome operations, lower the costs of maintaining them, and realize billions of dollars in savings.

"I don't think there's ever been a time when there's been so much pressure on banks," said David Rutter, R3's founder and chief executive. Citing postcrisis capital regulations and other costly rules, he says "it's been difficult if not impossible for these big banks to cut costs in a significant way."

A version of Concord is expected to be launched in the next several months, R3 executives told The Wall Street Journal, with a small number of banks using it to test some services early in 2017. It hopes to launch an "alpha" version by midyear. "We need to make this real to business users in 2017," said Todd McDonald, R3 co-founder and chief operating officer.

Figuring out the best way to use blockchain-based tools in the financial-services industry has become a hot topic. A number of firms, including Digital Asset Holdings, Hyperledger Project, Ripple, Microsoft's Azure, and others are all working on products to take advantage of the new technology.

In some ways, Concord resembles ethereum, the bitcoin offshoot being built as a platform for application hosting. Concord, too, is viewed as a platform that will allow developers to build any variety of applications and support smart contracts. But it is tailored expressly for financial institutions.

Perhaps the most important difference between Concord and bitcoin and ethereum is the way transactions are recorded. With bitcoin and ethereum, every transaction is recorded, verified and disclosed immediately in their public, distributed ledgers. With Concord, while the transaction is verified via a distributed ledger, it isn't publicly disclosed. The details are shared only by the parties involved.

Maintaining this confidentiality was a key concern of R3's member banks, said Mr. McDonald. R3 also worked with and met with more than 70 global regulators during development.

The banks in R3's consortium haven't committed to the new platform, and indeed aren't bound to use it, Mr. McDonald said. However, they have invested money and resources in helping build it and had input into Concord's specifications.

Write to Paul Vigna at [e-mail]

(END) Dow Jones Newswires

August 24, 2016 18:12 ET (22:12 GMT)

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