PS 1010 Unit VIII Learning Outcomes and Policies

PS 1010, American Government 1
Course Learning Outcomes for Unit VIII
Upon completion of this unit, students should be able to:
3. Describe the three branches of government.
4. Explain how the U.S. government functions at the federal,
state, and local levels.
5. Identify the role of political parties in the United States
political system.
6. Discuss how policies affect change.
6.1 Describe the purpose and goals of one type of policy in the
United States.
6.2 Discuss how a specific policy might cause the United States
to implement either isolationism or
internationalism.
7. Identify the impact of media on public opinion and politics.

Course/Unit
Learning Outcomes
Learning Activity
3
Unit VIII Lesson
Reading: “An ‘Invitation to Struggle’? The Use of Force
Against ‘Legislatively
Vulnerable’ American Presidents”
Reading: “11. Policy Making: Political Interactions”
Unit VIII Final Project
4
Unit VIII Lesson
5
6.1
Unit VIII Lesson
Chapter 17

Reading: “11a. Foreign Policy: What Now?”
Reading: “11b. Defense Policy”
Reading: “11c. Economic Policy”
Reading: “11d. Social and Regulatory Policy”
6.2
Unit VIII Lesson
Chapter 17
Reading: “Lesson 4: The Great Debate: Internationalists vs.
Isolationists”
7
Unit VIII Lesson
UNIT VIII STUDY GUIDE
Policy: Domestic, Economic, and Foreign
UNIT x STUDY GUIDE
Title

Reading Assignment
In order to access the reading from the OpenStax American
Government textbook, please click the link below.
Chapter 17: Foreign Policy (Section 17.4)
To access the following resources, click the links below.
Foster, D. M. (2006). An “invitation to struggle”? The use of
force against “legislatively vulnerable” American
presidents. International Studies Quarterly, 50(2), 421–444.
Retrieved from
https://libraryresources.columbiasouthern.edu/login?auth=CAS
&url=http://search.ebscohost.com/logi
n.aspx?direct=true&db=a9h&AN=20656715&site=ehost-
live&scope=site
Independence Hall Association. (n.d.). 11. Policy Making:
Political interactions. Retrieved from
http://www.ushistory.org/gov/11.asp
Independence Hall Association. (n.d.). 11a. Foreign policy:
What now? Retrieved from
http://www.ushistory.org/gov/11a.asp
Independence Hall Association. (n.d.). 11b. Defense policy.
Retrieved from
http://www.ushistory.org/gov/11b.asp

Independence Hall Association. (n.d.). 11c. Economic policy.
Retrieved from
http://www.ushistory.org/gov/11c.asp
Independence Hall Association. (n.d.). 11d. Social and
regulatory policy. Retrieved from
http://www.ushistory.org/gov/11d.asp
National Endowment for the Humanities. (n.d.). Lesson 4: The
great debate: Internationalists vs. isolationists.
Retrieved from https://edsitement.neh.gov/lesson-plan/great-
debate-internationalists-vs-
isolationists#sect-background
Unit Lesson
Government is empowered to make political decisions that
affect not only Americans but also other countries,
including both allies and enemies. Many things shape American
public policy: political campaigns, world
events, court cases, media attention, and almost anything one
can think of that can bring an issue to the
spotlight. Though the primary goal of setting policy is
protecting the needs and interests of the United States
and its citizens, there are often policies and decisions that look
at a larger global perspective. There is a
constant struggle between focusing on the United States and the
United States being the global policeman.
Foreign Policy
Most United States citizens are willing to step up and protect

their culture or way of life. Foreign policy is one
of the ways that Americans protect their national interests. To
do this, the United States government makes
sure that the military is adequately prepared and that there are
productive trade policies and relations. In
many ways, Franklin D. Roosevelt’s great isolationists versus
internationalists debate stemming from his
Lend-Lease proposal remains a hot topic today. Is America
better off immersing itself in world affairs,
regardless of the risk to American citizens and land, or are
Americans better served by remaining neutral and
avoiding involvement in other countries’ affairs? Such is the
basis of American foreign policy.
The State Department, headed by the secretary of state,
coordinates foreign relations through embassies
located in countries across the world. In order to do their work
well, State Department officials and staff must
have access to the most up-to-date intelligence available. This
intelligence is gathered mostly through the
Central Intelligence Agency (CIA), the National Security
Agency (NSA), and other agencies lightheartedly
referred to as the “Alphabet Soup Agencies” due to their use of
their acronyms rather than their full names.
https://cnx.org/contents/[email protected]:[email protected]/App
roaches-to-Foreign-Policy
&url=http://search.ebscohost.com/login.aspx?direct=true&db=a
9h&AN=20656715&site=ehost-live&scope=site
&url=http://search.ebscohost.com/login.aspx?direct=true&db=a
9h&AN=20656715&site=ehost-live&scope=site
http://www.ushistory.org/gov/11a.asp

http://www.ushistory.org/gov/11b.asp
https://edsitement.neh.gov/lesson-plan/great-debate-
internationalists-vs-isolationists#sect-background
https://edsitement.neh.gov/lesson-plan/great-debate-
internationalists-vs-isolationists#sect-background
UNIT x STUDY GUIDE
Title
During the Spanish-American War, the United States branched
out into world affairs for a time. Prior to and
following World War I (WWI), the United States became a more
isolationist country (“Isolationism”, n.d.).
Americans were more intent on building their infrastructure and
consolidating their colonies than worrying
about Europe and its ongoing disagreements. During World War
II (WWII), Americans came to believe that,
with the bombing of Pearl Harbor, the United States could no
longer keep blinders on and pretend that what
happened in Europe did not affect them (“Isolationism”, n.d.).
As a result, the United States became an
internationalist country.
From the end of WWII until 1991, the Cold War between the
United States and Russia dictated foreign policy
with a focus on containing communism. Fighting the spread of

communism was the biggest push of American
foreign affairs. For most of the Cold War, The Union of Soviet
Socialist Republics (USSR) and the United
States did not directly engage in combat, but instead moved
behind the scenes diplomatically and militarily in
various countries. The hottest parts of the Cold War were the
Korean Conflict during the 1950s, the Vietnam
War, and the Cuban Missile Crisis. President Ronald Reagan
was credited with expediting the collapse of the
USSR, which occurred in December of 1991, in no small part
because of its massive amount of defense
spending. This collapse would mark the end of the Cold War
and the rise of American hegemony. In addition,
the United States would begin to be viewed by the world as a
global largest superpower (Ngara, 2017).
With the collapse of the USSR, the United States began to call
for other countries to increase participation
and respond collectively to problems around the world. This
multilateralism was seen during the first Gulf War
as well as with the United States and North Atlantic Treaty
Organization (NATO) forces used in Bosnia when
the Serbs were committing genocide.
Since the attacks on the World Trade Center and
the Pentagon on September 11, 2001, America has
been fighting a war on terrorism. While this war on
terrorism at first manifested in the wars in Iraq and
Afghanistan, it is indeed a battle of many places
and faces. The Global War on Terrorism (GWOT)
has cost much in not only money but in the sense
of security, safety, and human life. Terrorism has
changed the way people travel, think, and live. The
problem with fighting terrorism is that fighting takes
place with many faces and in many locations rather

than a country with defined borders. Because of
this new kind of war, the United States has sought
to change its military into small and highly mobile
combat units that can fight wherever and whenever
needed (Berkowitz, 2002). About 7,000 military
members have given their lives in the war on
terrorism (Jenkins, 2016).
Economic Policy
In spite of fighting terrorism and people doing evil things, the
United States also lives and trades with the
world. No longer can any country be an island unto itself,
particularly one whose economy has become a
global economy. The United States has the strongest economy in
the world (Bajpai, 2018). There is one
significant question: “Does the government direct the economy,
or does the economy direct itself?”
(Independence Hall Association, n.d.-b, para. 1).
Spanning two broad categories of fiscal and monetary policy,
U.S. economic policy has four major goals:
stable markets, economic prosperity, business development, and
protecting employment (Federal Reserve
System, n.d.). Monetary policy refers to the government’s
policy of controlling the money supply. Too much
money in circulation leads to inflation, while too little leads to
deflation or can even lead to a recession
(Independence Hall Association, n.d.-b). Until the 20th century,
the United States operated under a laissez-
faire economic policy that required an open market
(Independence Hall Association, n.d.-b). During the Great
Depression, the concept of Keynesian economics emerged. This
policy was the opposite of the laissez-faire
strategy with a primary tenet that it was the government that

should manage the economy (Independence Hall
World Trade Center after the 9-11 attacks
(Tourtellotte, 2001)
UNIT x STUDY GUIDE
Title
Association, n.d.-b). The debate over which strategy is best
remains, as current policy lies somewhere
between the two strategies.
The American economy depends heavily on international
commerce. When one country falters in paying its debts, it
starts to drag down all of the others. Since 2008, many
countries, such as Greece and Cyprus, came close to
defaulting on their loans only to be bailed out by the
International Monetary Fund (IMF) so that the world’s
economy could stabilize. Internationalism and
multilateralism on a grand scale have been illustrated by
the European Union (EU), though the manifestation of the
potential negative effects of both have also become
increasingly evident. Rising conflict regarding policy led to
the United Kingdom’s exit from the EU, known as Brexit, in
2016 (“Eight Reasons Leave Won,” 2016).
Domestic Policy

The domestic policy-making process involves six primary steps:
deal with the problems; and
(Independence Hall Association, n.d.-a).
Domestic policy involves any policy related to actions and
issues of national importance that occur within our
borders. Some examples of domestic policy issues are
healthcare, education, welfare, insurance, and labor.
The United States uses a federalist form of government with a
constitutionally expressed separation of state
and federal governments. More often than not, the lines become
blurred when it comes to jurisdiction. In April
of 2010, the states of Arizona, South Carolina, Pennsylvania,
Minnesota, Rhode Island, Michigan, and Illinois
decided to enact their own immigration laws. These states were
protesting a federal government that was not
protecting the borders from illegal aliens who were putting
financial and systemic strains on their economies.
As a result, individual plaintiffs, as well as the U.S. Department
of Justice, filed lawsuits seeking to stop
Arizona’s SB 1070 law, which added additional state
requirements, crimes, and penalties related to the
enforcement of immigration laws (Morse, 2011).
In an analysis of the Supreme Court’s ruling on Arizona’s
immigration enforcement laws, Ann Morse, the

program director for the National Conference of State
Legislatures, made the observation that SB 1070 is
preempted specifically by the Immigration Reform and Control
Act of 1986 (IRCA). This preemption was a
result of U.S. foreign policy and federal law. Based on research
of similar cases and laws, Morse noted that
the laws violated at least two clauses of the U.S. Constitution,
the Supremacy Clause and the Commerce
Clause (Morse, 2011).
The U.S. Supreme Court upheld a portion of the Arizona SB
1070 law, but struck down other aspects. The
majority opinion stated that although Arizona has legitimate
frustrations with illegal immigrants, the state
cannot create policies that undermine federal laws. Because of
the unconstitutionality of portions of SB 1070,
Morse (2011) noted that the U.S. Department of Justice filed
injunctions before those portions could take
effect.
Regulatory policy is a large component of American domestic
policy. Regulatory bodies regulate everything
from what one can eat to what one can buy and where and how
the purchase is made. There are three basic
categories of federal regulations: business, labor, and
environment and energy. Regulatory policy has
stemmed directly from the preamble to the Constitution where
“promoting the general welfare” was prescribed
(Independence Hall Association, n.d.-c).
Brexit
(Kroschel, n.d.)

UNIT x STUDY GUIDE
Title
Public policy in America is a necessary but controversial
subject, particularly in the land of the free where
citizens often cite such freedoms as their right to ignore policy
altogether.
References
Bajpai, P. (2018, August 16). The world’s top 20 economies.
Retrieved from
https://www.investopedia.com/insights/worlds-top-economies/
Berkowitz, B. (2002, July 30). Fighting the new war. Retrieved
from http://www.hoover.org/research/fighting-
new-war
Eight reasons Leave won the UK’s referendum on the EU.
(2016, June 24). Retrieved from
http://www.bbc.com/news/uk-politics-eu-referendum-36574526
Federal Reserve System. (n.d.). Conducting monetary policy.
Retrieved from

https://www.federalreserve.gov/aboutthefed/files/pf_3.pdf
Independence Hall Association. (n.d.-a). 11. Policy making:
Political interactions. Retrieved from
Independence Hall Association. (n.d.-b). 11c. Economic policy.
Retrieved from
Independence Hall Association. (n.d.-c). 11d. Social and
regulatory policy. Retrieved from
Isolationism. (n.d.). Retrieved from https://www.u-s-
history.com/pages/h1601.html
Jenkins. B. M. (2016, September). Fifteen years on, where are
we in the “War on Terror”? Retrieved from
https://ctc.usma.edu/fifteen-years-on-where-are-we-in-the-war-
on-terror/
Kroschel, S. [Pixaline]. (n.d.). Brexit [Image]. Retrieved from
https://pixabay.com/en/brexit-united-kingdom-eu-
exit-1485004/
Morse, A. (2011). Arizona's immigration enforcement laws.
Retrieved from
http://www.ncsl.org/research/immigration/analysis-of-arizonas-

immigration-law.aspx
Ngara, C. O. (2017). America’s global hegemony since the
collapse of the Soviet Union: Implications for
Africa’s development. Global Journal of Social Sciences
Studies, 3(3), 113-121. Retrieved from
http://www.onlinesciencepublishing.com/assets/journal/JOU001
5/ART00197/1509341475_GJSSS-
2017-3(2)-113-121.pdf
Tourtellotte, J. (2001). World Trade Center 6 after the 9-11
attacks [Photograph]. Retrieved from
http://commons.wikimedia.org/wiki/File:World_Trade_Center_6
_after_the_9-11_attacks.jpg.
IN1544
R3:
Putting the ‘Fin’ Back in FinTech
01/2019-6451

This case was written by Anne Yang, Research Associate at
INSEAD, Xuexin Gao, Research Associate at PBC School of
Finance (PBCSF), Tsinghua University, Hong Zhang, visiting
fellow at INSEAD Emerging Markets Institute and Phoenix
Chair Professor of Finance at PBCSF, and Massimo Massa, the
Rothschild Chaired Professor of Banking at INSEAD. It
was developed jointly by INSEAD’s Emerging Markets Institute
and China Finance Case Centre of PBC School of
Finance. It is intended to be used as a basis for class discussion
rather than to illustrate either effective or ineffective
handling of an administrative situation.
Additional material about INSEAD case studies (e.g., videos,
spreadsheets, links) can be accessed at cases.insead.edu.
Copyright © 2019 INSEAD
COPIES MAY NOT BE MADE WITHOUT PERMISSION. NO
PART OF THIS PUBLICATION MAY BE COPIED, STORED,
TRANSMITTED, REPRODUCED OR DISTRIBUTED IN
ANY FORM OR MEDIUM WHATSOEVER WITHOUT THE
PERMISSION OF THE COPYRIGHT OWNER.
For the exclusive use of H. LIPORACE, 2019.
This document is authorized for use only by HERNAN
LIPORACE in FIN 6326 - Commercial Banking taught by
Krystal Saleta, Florida International University from May 2019
to Jun 2019.
https://cases.insead.edu

“While still in its infancy, the emergence of distributed ledger
technology comes at a
time when the financial services industry is poised to further
embrace technological
change and efficiencies."
C. Thomas Richardson, MD, Wells Fargo Securities1
1. Introduction
Financial technology, better known as fintech,2 has gained
prominence in recent years with the rise
of bitcoin and blockchain technology. After years of being a
rebel, in May 2017 it gained
mainstream acceptance with R3’s announcement that it had
raised a record US$107 million. Over
40 investors including technology and finance heavyweights
like Intel, Bank of America Merrill
Lynch, UBS, HSBC, and the Singapore government joined
forces with R3 to develop ‘block-chain-
like’ technology to be used by major banks.3
The investor consortium represented the largest group of global

financial institutions working on
commercial applications for the distributed ledger technology at
the heart of blockchain. R3’s
success in getting its existing members (clients) to invest in the
company was unique – particularly
in the finance industry. The fact that some of them were blue-
chip technology firms positioned R3
firmly at the confluence of technology and finance. R3 took
pains to emphasize that the underlying
technology was ‘distributed ledger’ rather than blockchain. Tim
Swanson, Director of Market
Research, explained the difference: “In simplest terms, a
blockchain involves stringing together a
chain of containers called blocks, which bundle transactions
together like batch processing,
whereas a distributed ledger like Corda does not, and instead
validates each transaction (or
agreement) individually.”
2. Rise of Fintech
As the line between technology and finance became increasingly
blurred, one area of fintech
blockchain created a particular buzz, both for its scope and
security. Martin Arnold wrote in the
Financial Times: “Blockchains allow encrypted data on
anything, from money to medical records,
to be shared between many companies, people and institutions.
This protects data from fraud while
instantly updating all parties concerned.”
Whenever blockchain was mentioned, the much-hyped bitcoin
sprung to mind. The surge in bitcoin
prices and the astronomical rise (and subsequent fall) in its
value dominated media headlines.

1 https://techcrunch.com/2017/05/23/blockchain-consortium-
r3-raises-107-million/
2 Fintech is broadly defined here as an industry composed of
companies that use new technology and innovation
to compete in the marketplace with traditional financial
institutions and intermediaries in the delivery of financial
services.
3 http://www.cnbc.com/2017/05/23/r3-funding-blockchain-
intel-bank-of-america-hsbc.html
Copyright © INSEAD 1
to Jun 2019.
http://www.cnbc.com/2017/05/23/r3-funding-blockchain-intel-
bank-of-america-hsbc.html
https://techcrunch.com/2017/05/23/blockchain-consortium-r3-
raises-107-million

2.1. Bitcoin
Bitcoin, first referred to in a white paper of 2008 by ‘Satoshi
Nakamoto’ (a pseudonym), was the
first application of blockchain technology. Although blockchain
could be applied to various
industries, it came to be almost synonymous with bitcoin as part
of an innovative peer-to-peer
electronic cash system enabling online payments to be
transferred without an intermediary, also
referred to as ‘cryptocurrency’. It was basically a way to bypass
government currency controls and
third-party payment processing intermediaries. To secure the
transactions, blockchain provided the
underlying technology, recording them in a public distributed
ledger and creating a peer-to-peer
network that was open, albeit anonymous.
2.2. Blockchain
The astronomical rise of bitcoin and other cryptocurrencies in
2017 raised public awareness of
blockchain, but with numerous other applications (in finance,
business, government) it clearly had
much greater potential. Hailed as “Web 3.0”, blockchain
technology formed the backbone of a new
type of internet that allowed digital information to be

distributed but not copied, and gave users the
ability to create value and authenticate digital information.
The information in a blockchain is essentially a shared (and
continually reconciled) database.
Blockchain underpins a decentralized digital ledger – a secure,
tamper-proof log of sensitive
activity – where transactions are not stored in a single location
but hosted by millions of computers
simultaneously, accessible to anyone on the internet but safe
from hackers.
Blockchain applications in banking and finance span numerous
functions including international
payments, transactions in capital markets and trade finance,
regulatory compliance and auditing,
protection from money laundering, and insurance.
2.3. Emergence of Fintech in Banking
Over the past decade, as the banking landscape became more
competitive, banks faced increasing
cost pressure on their products and service offerings.
Traditionally, banks had controlled most end-
to-end processing in-house, but the model started to change in
response to regulatory pressure and
a growing strategic focus on core products/services, such as
customer identity checks.
Fintech entered a new phase, where incumbent financial
institutions, start-ups and investors
collaborated to address industry challenges and spearhead
transformation. Banks and financial
services firms turned to fintech as way to either continue a
vertically-integrated model or move
into a specialist role.

A study by Accenture and McLagan in January 20174 reported
that eight of the world’s ten biggest
investment banks expected to implement blockchain, and
estimated it could cut costs by up to 30%,
saving between $8bn and $12bn. According to Richard Lumb,
head of financial services at
Accenture, “The first place we will see [blockchain] have an
impact is clearing houses, such as
https://themarketmogul.com/blockchain-rise-fintech/
Copyright © INSEAD
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2
to Jun 2019.
https://themarketmogul.com/blockchain-rise-fintech

Deutsche Börse…Today [clearing and settlement] is managed
through a myriad of messages and
manual reconciliation.” He estimated that by using blockchain
technology to restructure clearing
and settlement, the biggest investment banks could save US$10
billion.5
By 2017, fintech companies generally fell into two categories:
(i) competitors to financial services
companies, (ii) collaborators that provided solutions to enhance
the position of existing market
players. The incumbents had ceased to regard fintech as a direct
threat and began to see the value
of collaborating with – and even investing in them. In the past,
a bank’s back-office functions
served primarily as ‘support functions’ – processing payments
rather than generating revenue.
Now, some banks were divesting their processing units to create
independent for-profit businesses
that competed head-on with the banks. Concurrently, tech-
focused fintech companies sought to
join with large financial institutions to expand into markets,
gain industry and regulatory
knowledge, or even cash out. They included public companies
like IBM, Accenture and Visa, and
start-ups like Digital Asset Holdings, Ripple, and R3 – forming
a new fintech wave.

3. R3 and its Mission in Distributed Ledger Technology
3.1. A Brief History of R3
R3 started out as a family office in 2014, investing in early-
stage start-ups in the fintech space.
When the term ‘cryptocurrency’ began to repeatedly crop up on
the radar, the founders organized
a series of industry roundtables, starting in September 2014, in
New York City, where
representatives of early fintech players (DRW, Align
Commerce, Perkins Coie, Boost VC, and
Fintech Collective) were invited to give a talk. Representatives
from eight banks showed up to hear
about cryptocurrency from the experts. A second round table,
this time on the West Coast (Palo
Alto), brought together Silicon Valley players like Stanford,
Andreessen Horowitz, Xapo, BitGo,
Chain, Ripple, and Mirror. Representatives from 11 banks
showed up. Several speakers agreed to
become advisors to R3. By the end of 2014, the family office
had invested in several fintech start-
ups including Align Commerce.
In the first quarter of 2015, R3 launched LiquidityEdge, an
electronic trading platform for the US
Treasury, and it incorporated the Distributed Ledger Group
(DLG) in Delaware. Henceforth it
focused its efforts on these two. A final roundtable was held in
May 2015, with presentations by
Hyperledger (the company), Blockstack, Align Commerce and
the Bank of England. This time, 15
bank representatives as well as a market infrastructure operator
and a fintech VC firm joined in.
DLG transitioned from a working group to a commercial entity
and by the end of 2015 it had

admitted 42 members and changed its name to R3.
3.2. Putting the Fin back in Fintech
Unlike other blockchains or distributed ledger technology
(DLT), Corda was launched by R3 as a
DLT platform specifically for the finance industry. It was
geared towards reducing industry pain
5 Ibid.
to Jun 2019.

points at a time of increasingly complex transactions. Privacy
(even secrecy) was critical; access
to transaction data was restricted to a ‘need-to-know’ basis
within the network. The consortium's
efforts led to the creation of an open-source distributed ledger
platform with the following
characteristics:
1. Engineered for business: R3 wanted Corda to be a leading
distributed ledger platform, designed
by the world's largest financial institutions to manage legal
agreements on an automatable and
enforceable basis.
2. Restricted data sharing: Corda only shared data with those
with a need to view or validate it;
there was no global broadcasting of data across the network.
3. Easy integration: Corda was designed to make integration and
interoperability easy. Users could
query the ledger with SQL, join external databases, perform
bulk imports, and code contracts in
a range of standard languages.
4. Pluggable consensus: Corda was the only distributed ledger
platform to support multiple
consensus providers employing different algorithms on the same
network, enabling compliance
with local regulations.

R3’s CTO Richard Brown insisted: “We are not building a
blockchain. Unlike other designs in this
space, our starting point is individual agreements between firms
('state objects' governed by
'contract code' and associated 'legal prose'). We reject the
notion that all data should be copied to
all participants, even if it is encrypted.”
R3 believed that distributed ledger technology had the potential
to transform the financial services
industry. It envisioned a future in which financial agreements
were recorded and automatically
managed without error and contracts were transacted
seamlessly. It strove to eliminate existing
problems like duplication, reconciliation, failed matches and
breaks.
Unlike other fintech firms, R3 did not originate from a financial
services nor a technology firm. It
saw itself as a perfect hybrid – a firm that created technology
solutions focused on finance, which
resolved confidentiality and other issues of existing blockchain
technologies. It built a new
operating system (Corda) from scratch, geared to financial
markets using a blockchain-based
distributed ledger platform that met the stringent standards of
the financial industry and could be
tailored to any commercial scenario.
The concept of a decentralized database sought to overcome the
shortcomings of shared and
distributed databases. The novel features provided by the Corda
platform included new transaction
types, execution of transactions in parallel, direct peer–to-peer
communication between nodes in

the network, the presence of multiple notaries employing
various consensus algorithms,
elimination of global broadcast, and the sharing of data on a
need-to-know basis.6
http://micobo.com/main-insights-to-r3s-corda-dlt-platform/
Copyright © INSEAD
6
4
to Jun 2019.
http://micobo.com/main-insights-to-r3s-corda-dlt-platform

3.3 Distributed Ledger Technology versus Traditional Banking
Architecture
Financial institutions were typically early adopters of
technology and, for the most part, their
physical and manual processes had been digitalized and
automated. However, opportunities
remained to improve costs and efficiency by redesigning the
systems architecture. For example,
each bank maintained its own ledgers, which formed the basis
of its view of agreements and
positions with respect to its customer set and its counterparts.
This resulted in duplication of records
(by other banks) and inevitably inconsistencies and errors, that
required reconciliation. It was these
inefficiencies that enabled distributed ledger technology (DLT)
to gain traction in the industry.
DLT was made possible by three innovations: peer-to-peer
networks, public key cryptography, and
consensus algorithms.7
A distributed ledger was basically an asset database that could
be shared across a network of
multiple sites, geographies and institutions. All participants
(‘nodes’) within the network had an
identical copy of the ledger; entries could be updated by one,

some or all participants according to
agreed rules. Updates were visible on all copies within minutes
(in some cases seconds). To ensure
the accuracy and security of the assets in the ledger, entries
were encrypted through the use of ‘keys’
and signatures to control ‘who could do what’.
Cutting across functions/processes such as trade finance, cross-
border payments, re-insurance,
clearing and settlement – was an evolution of other peer-to-peer
concepts. It gave Corda’s
blockchain platform increased flexibility and offered the
following advantages:
Operational simplification – eliminating the need to perform
reconciliation manually and
resolve ‘disputes’
Regulatory efficiency – enabling real-time monitoring of
financial activity between
regulators and regulated entities
Risk reduction – counterparts no longer had to be trusted to
fulfil their obligations as
agreements were codified in a shared, immutable environment
Reduction in clearing/settlement time
Improvement in liquidity/capital
Minimization of fraud
An important distinction lay in the fact that in other DLT data
was distributed to all participants,
whereas in Corda data was shared only between the two parties
involved in the transaction. While

7 According to Deloitte, three innovations laid the groundwork
for the invention of DLT.
Peer-to-peer networks: In this model, every peer is a server and
client, both supplying and consuming resources. This can
facilitate the creation of a currency without a privileged third
party, among other types of decentralised financial
interactions.
Public key cryptography: used for verifying digital identity
with a high degree of confidence. Cryptography enables
individual identification and exchange of bitcoin among users.
Consensus algorithms: ensure agreement between parties on a
network, validate the data’s authenticity as well as
transactions, and control when it can be written into the system.
This prevents double spending by ensuring chorological
recording of data.
to Jun 2019.

a centralized ledger was controlled by a single entity,
participants in a distributed ledger had shared
control of the data’s evolution (see Figure 1).
Figure 1: Other Distributed Ledger Technology vs. Corda
Source: R3
In short, Corda created a private or ‘permissioned blockchain’ –
that was expected to eventually
dominate the majority of commercial applications, particularly
in the capital markets. Permissioned
variations added a layer of privileging to determine who could
participate in the chain. Goldman
Sachs anticipated that the majority of commercial applications
would use some form of
permissioned model8 based on the principle that the only parties
with access to the details of a
financial transaction should be the parties themselves and others
with a legitimate ‘need to know’.
In most blockchains, all participants had to reach consensus
over the order of the transactions that
had taken place, irrespective of whether they had taken part in a
particular transaction or not. The
order of the transactions was crucial for the consistency of the
ledger. If a definitive order could
not be established, there was a risk of double-spending – i.e.,
that two parallel transactions
transferred the same coin to different recipients, thus making

money out of thin air. As the network
might involve mutually untrustworthy or anonymous parties, a
consensus mechanism was required
to protect it from fraudulent participants attempting double-
spending. Typically, this mechanism
was established by data mining based on proof-of-work (PoW).
All participants had to agree upon
The Goldman Sachs Group, Inc., ‘Profiles in Innovation
Blockchain – Putting Theory into Practice’, May 24,
2016
Copyright © INSEAD
8
6
to Jun 2019.

a common ledger and had access to all entries ever recorded.
However, PoW unfavourably affected
transactions processing performance; albeit anonymized, they
were nevertheless accessible to all
participants, which was problematic for applications that
required a higher degree of privacy.
In contrast, Corda’s interpretation of consensus was more
refined - based neither on PoW nor data
mining. Operating in permission mode, Corda provided more
fine-grained access to records,
enhanced privacy and consensus at the transaction level by
involving only relevant parties. It used
special notary nodes to solve transaction races (i.e. reach
consensus) – and different consensus
algorithms could be used on the same network – by offering a
transaction ordering and
timestamping service. Notaries were identified/signed with
composite public keys made up of
multiple mutually distrusting parties who used standard
consensus algorithms such as BFT and
Raft (depending on the scenario). Notaries accepted a
transaction by returning a signature over the
transaction, or returned a rejection error. Notarization was
triggered after all signatures were

obtained and the transaction was stored in the database once the
finality flow was complete.
Consensus was needed only for notaries 9 (Byzantine Fault
Tolerant or Raft algorithms). 10
Consensus on transaction validity was performed only by those
who were a party to it, hence data
was only shared with those required to see it.
Transactions – one of the basic data structures on the Corda
platform – could be passed around to
be signed and verified by third parties. They were constructed
on the assumption that a transaction
formed an entity with input and output states, commands and
attachments. Sensitive data was not
revealed to other nodes that took part in the transaction on the
validation level (as illustrated by the
Oracle which validated only embedded commands).
Corda used a well-known cryptographic schema to convince the
other party that the data sent for
signing was a part of the transaction by providing proof of
inclusion and data inclusion using
Merkle trees – as used in peer-to-peer networks, blockchain
systems and Git – whereby transactions
were split into leaves, each containing either input, output,
command or attachment. Other fields
like timestamp or signers were not used in the calculation.11
3.4 Applications of Corda
Corda’s architecture was heavily influenced by the three most
common use-cases, each conceived
of by R3 as a financial agreement:
A cash balance (e.g., “The following bank and I agree that they
owe me $1 million”)

9 Notaries serve to witness/certify the validity of signatures on
documents, as well as certify the document’s
authenticity. Storing information on a blockchain provides (1) A
timestamp or digital fingerprint proving that a
document (containing an idea, for example) was created at that
point in time. Data on the blockchain (in geek
speak) is immutable - cannot be changed - as it is locked within
the blockchain forever. (2) Ownership: with
public/private key technology you can prove that you were the
person that put the document there. (3)
Independent verification: a third party can verify that the
document was placed there by the person who holds the
private key.
10 https://medium.com/chain-cloud-company-blog/a-first-look-
at-r3-corda-released-yesterday-7a62a298c43f
11 https://docs.corda.net/releases/release-M8.2/merkle-
trees.html
to Jun 2019.
https://docs.corda.net/releases/release-M8.2/merkle-trees.html
https://medium.com/chain-cloud-company-blog/a-first-look-at-
r3-corda-released-yesterday-7a62a298c43f
https://calculation.11

A security under custody (e.g., “The following custody bank
and I agree that I own 1000 shares
of the following corporation”)
A bilateral derivative agreement (e.g., “Banks A and B agree
that they are parties to the
following Interest Rate Swap (IRS), which means they agree to
exchange the following
cashflows (netted) at predetermined scheduled times with an
agreed payoff formula”)
Taking the first of these examples, Corda’s cash design
explicitly modelled the notion there was
no such thing as ‘money in the bank’ – only a cash claim by an
owner with respect to a named
institution. Corda’s core cash contract was extremely simple but
powerful: it recorded the legal
identity of the cash issuer, the currency, amount, owner (and
information about the nature of the
claim, with an explicit link to the legal prose governing the

agreement setting out resolution
procedures in the event of dispute), and used that identity to
build up all other cash-related concepts
(payments, netting, and so forth).
In August 2017, 11 eleven global banks announced a major
milestone in the digitization of
documentary trade finance: joint development of a prototype
application on R3's Corda with the
potential to significantly reduce inefficiencies and costs by
streamlining the processing of letters
of credit. They included Bangkok Bank, BBVA, BNP Paribas,
HSBC, ING, Intesa Sanpaolo,
Mizuho, RBS, Scotiabank, SEB and U.S. Bank. IT consultancy
CGI also took part.
In May 2018, a soybean trade between two arms of Cargill using
letters of credit from HSBC and
ING showed the R3 Corda platform was finally set to scale up.
Acting on behalf of Cargill, the two
banks successfully executed a live trade-finance transaction for
international food and agriculture
conglomerate Cargill using R3’s Corda blockchain platform.
This was for a bulk shipment of
soybeans from Argentina, through Cargill’s Geneva trading arm,
to Malaysia, with Cargill’s
Singapore subsidiary as the purchaser through a letter of credit
(LC) issued using Corda by HSBC
to ING.
4. R3’s Strategy Going Forward
R3 differentiated itself in the fintech industry with three unique
features: (1) Having customers as
its investors (2) Expanding the usage of DLT as crucial
technology to synchronize ‘Fin and Tech’

(3) An open source platform to allow growth.
4.1 Customers as Investors
Since the launch of its DLT initiative in September 2015, R3
had grown from a staff of eight finance
and technology veterans with nine bank members to a global
team of over 110 professionals serving
over 80 global financial institutions and regulators on six
continents. Over 2,000 technology,
financial, and legal experts drawn from its global member base
supported the company’s work.
That base included banks, clearing houses, exchanges, market
infrastructure providers, asset
managers, central banks, conduct regulators, trade associations,
professional services firms and
technology companies.
to Jun 2019.

R3 embarked on its fundraising journey in a unique fashion,
limiting the first two tranches of Series
A to R3 members, and opening the third (and final) tranche to
non-R3 investors. In May 2017, it
announced raising a record $107 million, the largest single
investment in a blockchain company to
date, that included 40 of its members. Investors represented an
equal geographical split across
Europe, Asia-Pacific and the Americas from over 15 countries
(see Appendix I). In an industry
where competition was often cut-throat and rivalries intense, R3
CEO David Rutter observed:
“This investment is unprecedented. Many of the world’s largest
financial firms have
come together not just with capital support, but with a robust
commitment to work with
R3 in developing industry solutions that will be the building
blocks of the new financial
services infrastructure. We’ve got unparalleled momentum.
R3 has proven the collaborative model can successfully drive
innovation in financial
services to a degree never before seen… In the space of less
than two years, we have
built a network of over 80 members, launched an open-source
distributed ledger
platform specifically for wholesale financial markets, conducted

over 60 detailed use
cases across a variety of asset classes, led the way in regulatory
engagement on behalf
of the broader DLT community and are ahead of schedule for
initial commercial
deployments this year. We are on our way to becoming a new
operating system for
financial services.”
In addition to its ‘user-investors’, more than 80 banks and
financial institutions now used the Corda
platform, making it the largest banking-centric blockchain
consortium in the finance industry.
Having its users/customers as investors ensured that its
development was demand-driven and
relevant to the changing needs of the industry. Users were
incentivized to provide immediate
feedback on Corda while generating relevant data for future
development of the software, as well
as setting the direction for R3’s continued growth. Regulators
were also part of its investor/client
base. If a Corda-based banking platform needed regulations as
commonly agreed among the users,
the function could be implemented through notaries.
4.2 Leveraging DLT to Synchronize Fin and Tech
Unlike other blockchain platforms (e.g., Fabric, Ethereum),
Corda was specifically developed as a
DLT for the financial services industry,12 which allowed R3 to
simplify its architectural design and
take into account the highly regulated environment by
augmenting smart contracts with the
necessary legal jargon. In a distributed ledger, the mode of
participation (permissionless or
permissioned) had a profound impact on how consensus was

reached. In Corda, participation was
permissioned and the network was restricted to participants
selected in advance and given access
to the network. Consensus was reached at transaction level by
the involved parties, and validity
and uniqueness were verified by running the associated smart
contract codes, checking for all
required signatures, and assuring that any other transactions
referred to were also valid.
12 https://medium.com/@philippsandner/comparison-of-
ethereum-hyperledger-fabric-and-corda-21c1bb9442f6
to Jun 2019.
https://medium.com/@philippsandner/comparison-of-ethereum-
hyperledger-fabric-and-corda-21c1bb9442f6

4.3 An Open-Source Platform
In December 2016, R3 caused a stir in the fintech industry by
releasing the Corda platform as an
open-source free-of-charge product to the global developer
community. Henceforth, banks and
other financial institutions could build their own in-house
applications on top of the platform.
Moreover, as Corda was built from the ground up to enable
legal contracts and other shared data
to be synchronised between mutually distrusting parties, it had a
potential to be used in a wide
range of industries. CEO Rutter shared the rationale:
“The successful application of distributed ledger technology to
financial services relies
on new solutions being able to integrate and work seamlessly
with each other,
otherwise the disjointed infrastructure financial markets are
forced to operate with
today will simply be replicated with different technology. The
applications being built
therefore need to be based on common, open, interoperable
platforms – much like the
common protocols on which the internet operates today. Open
sourcing Corda is the
next step in making Corda one of these platforms.”
Although applications on the platform were kept separate, they

were still able to ‘talk’ to each other
by connecting investor and member nodes on the software. The
open-source platform gave R3 the
unique advantage of being able to see what type of applications
were developed and their popularity.
In a major coup, Amazon Web Services (AWS) announced in
December 2017 a partnership with
R3 to allow the Corda platform to become the first-ever
distributed ledger technology solution on
AWS. In April 2018, LenderComm launched a platform for the
syndicated lending community
underpinned by Corda, used by top global banks including BNP
Paribas, BNY Mellon, HSBC,
ING and State Street.
4.4 Fintech in Emerging Markets and Other Industries
Fintech’s rapid rise in China stemmed from a unique confluence
of three factors: mass adoption of
smartphones, a large underbanked but tech-savvy population,
and a ‘grey’ financial regulatory
environment. Unlike their financial counterparts in developed
economies, Chinese companies did
not have to work around legacy systems – they simply ‘leap-
frogged’ to the latest technologies
available such as mobile payments and blockchain applications.
For companies like Tencent and
Alibaba, in addition to conquering the domestic Chinese market,
their fintech applications were
increasingly rolled out in other emerging markets.
China was the most active filer of blockchain patent
applications globally in 2017, as technology
and financial services groups rushed to claim exclusivity on the
‘mutually distributed ledger’ that
could revolutionise finance and other supply chains. Data

collated by Thomson Reuters from the
World Intellectual Property Organisation (Wipo) database
showed that in 2017, more than half of
the 406 blockchain-related patent applications were from China.
Patent applications for blockchain,
spanning everything from cryptocurrencies such as bitcoin to
the tracking of chickens, trebled in
to Jun 2019.
2017. Patents specific to cryptocurrencies which are not
included in the blockchain patent category
rose 16% to 602 in 2017.13 Could R3 gain recognition and
expand its business in China?

5. Concluding Questions
R3’s history gives rise to interesting questions. Designed from
the ground up as a distributed ledger
platform to record, manage and synchronise financial
agreements between regulated financial
institutions, R3 spearheaded the third wave of blockchain
platforms targeting these critical
shortcomings other blockchain platform. As the company had
specifically developed Corda as a
blockchain platform to provide an enterprise-level DLT to
financial institutions, its features solved
some of the inconsistencies of other blockchain platforms in
meeting the demands of the finance
industry. Since fintech seeks to seamlessly merge tech-oriented
innovations with finance, it needs
to give more weight the latter: What are the most important
institutional features of the financial
services industry? Are these features consistent with recent
developments in blockchain-type of
fintech? Could Corda improve consistency? Could such
innovations help emerging markets to
develop their financial institutions?
13 https://www.ft.com/content/197db4c8-2e92-11e8-9b4b-
bc4b9f08f381
to Jun 2019.

https://www.ft.com/content/197db4c8-2e92-11e8-9b4b-
bc4b9f08f381
Appendix 1
List of Investors in R3
Source: R3
to Jun 2019.

Appendix 2
Timeline of R3
September 15, 2015: The consortium starts with nine financial
companies, including Barclays, Credit
Suisse, Goldman Sachs, J.P. Morgan, Royal Bank of Scotland
and UBS, followed by others in the months
that follow.
March 3, 2016: R3 announces completion of a trial involving 40
banks held in the last two weeks of
February, testing the use of blockchain solutions offered by
Monax, IBM, Intel and Chain to facilitate the
trading of debt instruments.
November 2016: Goldman Sachs, Santander and Morgan Stanley
withdraw from the consortium.
In April 2017, JPMorgan Chase quits R3 to pursue its own
blockchain strategy.
May 23, 2017: R3 publicly announces it has secured the largest
ever investment for distributed ledger
technology, with USD107 million as part of its Series A funding
round, from over 40 institutions, spanning
15 countries.
May 2017: In October 2017, R3 announces a new version of its
blockchain platform, Corda. It helps
financial institutions to apply emerging technology more
conveniently.

December 2017: Amazon Web Services (AWS) announces a
partnership with R3 to allow the Corda
platform to become one of the first ever distributed ledger
technology solutions on AWS. Corda allows
users to deploy DApps on the AWS platform and create new
apps directly.
February 2018: R3 announces the creation of a Legal Center of
Excellence (LCoE) with an initial team of
ten law firms that will educate lawyers globally about new
fintech and blockchain technologies.
March 2018: Credit Suisse and ING complete the first live
securities lending transaction, worth €25 million,
using an application from HQLAx, a financial technology firm
that was built on Corda.
April 2018: Finastra launches the first live application on R3’s
Corda. Fusion LenderComm is a blockchain-
powered platform for syndicated loans.
July 2018: R3 is reported to be exploring IPO possibilities.
Source: Wikipedia, R3, Bloomberg
to Jun 2019.

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