Blockchain
Goldman Sachs, Microsoft, Deloitte and Cboe Global Markets are collectively embracing a blockchain system aimed at interconnecting various institutional applications.
The Canton Network endeavors to be a system that brings together different applications used by banks and other financial companies, connecting them in a way that allows them to work together more easily and securely, according to a statement from May 9.
The network says it links independent applications developed with DAML (Digital Asset Modelling Language), Digital Asset’s purpose-built smart-contract programming language that was introduced back in 2016.
Starting in July, network participants plan to initiate comprehensive testing of interoperability capabilities across a diverse set of applications and use cases.
Financial giants have been finding ways to turn regular securities like stocks and bonds to digital tokens using blockchain. They have also been looking for ways to make operations less expensive and enable faster transactions between financial institutions in real time.
Canton is looking to solve challenges in current systems that lack the ability to seamlessly integrate with one another while still maintaining the necessary controls required in financial markets.
This permissioned approach is presented as necessary and in contrast to the open permissionless philosophy at the base layer of public blockchains.
Billing itself as a “network of networks,” Canton claims to overcome the challenges faced by previous enterprise blockchain efforts that fizzled, by helping different applications work together without making the organizations that use them relinquish control.
Other firms participating in the blockchain network alongside Goldman Sachs include Capgemini, Broadridge, Deutsche Borse, Digital Asset, Moody’s and Paxos.
These financial industry giants lend some weight to Canton claims that it will change how things work in financial markets. The group gave the example of how, currently, asset registers (where information about assets is stored) and cash payment systems (used for making payments) are separate and isolated.
Canton says it can combine a digital bond and a digital payment into one transaction, ensuring that they happen at the same time without any hiccups. Additionally, a digital asset can be used in other financial transactions, like collateralizing a loan, by connecting it to different applications, it said.
This is also possible using other open-source blockchain-based smart contract platforms where application composability is a primary design objective.
At present, Canton claims to facilitate connections between other permissioned blockchain solutions like Deutsche Horse Group’s D7 post-trade platform and Goldman Sachs’ GS DAP. However, as more applications built using Daml become operational, the network is expected to expand its connections.
Canton Network’s competitive advantages compared to public permissionless systems include enhanced privacy, control, regulatory compliance and interoperability. However, it may have limitations in terms of decentralization, network effects, restricted access and potential trust requirements. The choice between public permissionless and private permission systems would depend on specific needs and considerations.
Industry voices react to Canton and its impact
Sacha Ghebali, director of strategy at The Tie, highlighted the significance of large institutions teaming up to create a decentralized ledger that fits their needs. He expressed curiosity about how institutional blockchains will integrate with public blockchains.
Konstantin Horejsi, chief product officer at gamified crypto trading platform Blocktrade, likes how the Canton Network balances security and transparency for business-to-business applications. But he emphasized the need for a central control organ and user acceptance for widespread adoption.
“Canton Network is taking an interesting approach for B2B applications, where a high level of security is paired with adaptable transparency,” he said.
“As an example: if I put a transaction on the Ethereum blockchain, its full content is visible to everyone. On Canton, I could choose that only a summary or high-level information is publicly visible, whereas my bank could look into more detail.”
The same level of privacy is promised by layer-2 rollups based on zero-knowledge proofs, but these have yet to reach production scale for practical use.
Ken Timsit, head of Cronos, explained that private consortium blockchains offer legal clarity and customized governance for companies operating within specific regulatory frameworks. But he acknowledged that big-shot companies have favored public blockchains for high-value cases.
“The primary reason why some companies use private consortium blockchains is when the
use case relies on a legal framework that must assign liabilities to clearly identified actors if anything goes wrong,” he explained.
Ian Weisberger, co-founder of CoinRoutes, discussed the advantages of consortium networks in terms of fee revenue and regulatory compliance. But he said these networks are not as open and secure as big public networks.
Costanza Gallo, ecosystem and partnership manager at Swarm, sees the Canton Network as a step towards change. She said it’s helping big companies embrace decentralization and do things differently.
Tim Dierckxsens, CEO of blockchain wallet provider Venly, applauded the collaboration for recognizing the potential of blockchain technology to transform financial markets. He emphasized the benefits of collaboration, transparency and efficiency that blockchain can offer.
Zaki Manian, co-founder of DeFi protocol Sommelier Finance, is not swayed that the permissioned consortium route is viable over the long term, and believes that regulators will eventually come to grips with that.
“The biggest thing that regulators are fundamentally aware of — they just don’t like to talk about — is that if you want to have a global system, it must be neutral and permissionless,” Manian told Blockworks prior to the Canton announcement. “A global digital marketplace at its base layer must be permissionless because no jurisdiction agrees on what is KYC [is, or] what a security is.”
Overall, these industry representatives acknowledged the Canton Network’s importance in tackling challenges, promoting collaboration and fuelling innovation within the financial industry.
