Blockchain
Goldman Sachs, Microsoft, Deloitte and Cboe Global Markets are collectively embracing a blockchain system aimed at interconnecting various institutional applications.
According to a May 9 statement, the Canton Network aims to be a system that brings together various applications used by banks and other financial companies, connecting them so that they can work together more easily and securely.
The network says it links independent applications developed using DAML (Digital Asset Modeling Language), Digital Asset’s purpose-built programming language for smart contracts that was introduced in 2016.
Starting in July, network participants plan to conduct extensive testing of interoperability capabilities across a diverse set of applications and use cases.
Financial giants have found ways to convert mainstream securities such as stocks and bonds into digital tokens using blockchain. They have also looked for ways to make operations cheaper and enable faster transactions between financial institutions in real time.
Canton seeks to solve challenges in current systems that are unable to integrate seamlessly with each other while still maintaining the necessary controls required in the financial markets.
This consent approach is presented as necessary and in contrast to the no-consent open philosophy at the base layer of public blockchains.
Canton, which bills itself as a “network of networks,” claims to overcome the challenges previous enterprise blockchain efforts faced, which failed, by helping different applications work together without the organizations using them relinquishing control.
Other companies participating in the blockchain network besides Goldman Sachs include Capgemini, Broadridge, Deutsche Borse, Digital Asset, Moody’s, and Paxos.
These financial industry giants lend some weight to Canton’s claims that it will change the way things work in the financial markets. The group gave the example of how asset registers (where asset information is stored) and cash payment systems (used to make payments) are currently separate and isolated.
Canton says it can combine a digital bond and a digital payment into one transaction, so they can take place at the same time without any issues. In addition, a digital asset can be used in other financial transactions, such as the collateral of a loan, by linking it to various applications, it said.
This is also possible using other open-source blockchain-based smart contract platforms where the ability to compose applications is a primary design objective.
Currently, Canton claims to enable connections between other approved blockchain solutions, such as Deutsche Horse Group’s D7 post-trade platform and Goldman Sachs’ GS DAP. However, as more applications built with Daml become operational, the network is expected to expand its connections.
Canton Network’s competitive advantages over public, permissionless systems include enhanced privacy, control, regulatory compliance, and interoperability. However, it may have limitations in terms of decentralization, network effects, limited access, and potential trust requirements. The choice between public authorizationless and private authorization systems would depend on specific needs and considerations.
Industry voices respond to Canton and its impact
Sacha Ghebali, director of strategy at The Tie, emphasized the importance of large institutions working together to create a decentralized ledger that meets 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 stressed the need for a central monitoring body and user adoption for widespread adoption.
“Canton Network takes an interesting approach for B2B applications, where a high level of security comes with customizable transparency,” he said.
“As an example, if I put a transaction on the Ethereum blockchain, the entire contents will be visible to everyone. For Canton, I could choose only a summary or high-level information to be publicly visible, while my bank could view more details.
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 provide legal clarity and custom governance for companies operating within specific regulatory frameworks. But he acknowledged that large companies have preferred public blockchains for high-value business.
“The main reason some companies use private consortium blockchains is when the
use case is based on a legal framework that should assign liabilities to clearly identified actors if something goes wrong,” he explained.
Ian Weisberger, co-founder of CoinRoutes, discussed the benefits of consortium networks in terms of fee income and regulatory compliance. But he said these networks are not as open and secure as large public networks.
Costanza Gallo, ecosystem and partnership manager at Swarm, sees the Canton Network as a step toward change. She said it helps big companies embrace decentralization and do things differently.
Tim Dierckxsens, CEO of blockchain wallet provider Venly applauded the partnership for recognizing the potential of blockchain technology to transform financial markets. He highlighted the benefits of collaboration, transparency and efficiency that blockchain can offer.
Zaki Manian, co-founder of the DeFi protocol Sommelier Finance, is not convinced that the approved consortium route is viable in the long run, and believes regulators will eventually get a handle on it.
“The main thing regulators are fundamentally aware of — they just don’t like to talk about it — is that if you want to have a global system, it has to be neutral and permissionless,” Manian told Blockworks ahead of Canton’s announcement. “A basic tier global digital marketplace must be permissionless as no jurisdiction agrees on what KYC is [is, or] which is a certainty.”
Overall, these industry representatives recognized the importance of the Canton Network in addressing challenges, fostering collaboration and driving innovation within the financial industry.