Canton: A Distributed Ledger for Global Finance

Picture this: it's 2 AM and a pension fund in Tokyo wants to settle a $500M bond trade with Deutsche Bank in Frankfurt, while keeping the transaction details private from every other bank on the network. In traditional finance, this would require multiple intermediaries, T+2 settlement, and a maze of bilateral agreements.

With Canton, it happens atomically in minutes to hours with mathematical privacy guarantees.

This is the first post in our Distributed Systems in Finance series: we will study Canton, a distributed ledger designed specifically for financial institutions.

Why Finance Needs Distributed Systems

Financial markets are inherently distributed. Multiple participants (banks, brokers, asset managers, exchanges) must maintain a shared view of state while competing in real time.

Key requirements:

• Consistency: everyone agrees on who owns what.
• Low latency: trades and settlements must finalize quickly.
• Fault tolerance: no single point of failure can halt global markets.
• Privacy: parties must only see what they are entitled to.

These needs mirror distributed systems challenges (consensus, replication, partition tolerance), but with stricter requirements for regulation, privacy, and scalability.

Real-world example: when Swedbank trades mortgage-backed securities with BNP Paribas, they need consistency (both banks agree on the trade), low latency (settlement in hours, not days), fault tolerance (if one bank's systems go down, the trade doesn't disappear), and privacy (competing banks on the same network can't see their positions).

Public vs. Enterprise Blockchains

Here's the trillion dollar question: how do you get competing banks to share a ledger without sharing their secrets?

• Public blockchains like Bitcoin solve this by making everything visible to everyone (terrible for financial institutions).
• Enterprise blockchains like Canton flip the model: selective disclosure instead of global broadcast.

Canton's Core Architecture

At its core, Canton is a synchronization layer for Daml smart contracts.
It doesn't replace existing financial systems but coordinates them in a shared, consistent way.

Let's trace a trade through Canton's architecture:

• Goldman Sachs (Participant A) wants to buy bonds from Credit Suisse (Participant B)
• The Sequencer timestamps their agreement
• The Mediator validates both parties consent
• Only Goldman and Credit Suisse see the trade details, other banks just see cryptographic proof it happened

Canton's consensus model is fascinating: instead of Byzantine Fault Tolerance across all nodes, it uses crash-fault tolerance per domain + cryptographic integrity globally. This trades theoretical Byzantine resilience for practical performance: perfect for regulated finance where participants are known entities, not anonymous miners.

Key components

• Participants: nodes operated by financial institutions. They host parties, execute smart contracts, and enforce privacy.
• Domains: trust zones where transactions are sequenced and validated. Each domain has:
  • Sequencers: provide a total order of transactions.
  • Mediators: check transaction validity and resolve conflicts.
• Parties & Contracts: represent institutions, clients, and agreements in the system. Contracts are governed by Daml templates.

Analogy: Think of Canton as a distributed database where:

• Participants = database replicas, but with strict privacy filters.
• Sequencers = the transaction log.
• Mediators = concurrency control and validation.

Data Model: Parties, Contracts, Privacy Sets

Canton uses the Daml language for defining contracts.
Unlike Ethereum's global state, Canton enforces fine-grained privacy:

• Contracts are only visible to the parties involved.
• Privacy sets define exactly who can see which transaction.
• Other participants only see cryptographic proofs, not data.

This design ensures confidentiality without losing integrity.

Consensus, Synchronization, and the Global Synchronizer

Canton avoids proof-of-work or proof-of-stake. Instead:

• Sequencers order transactions (like Kafka for financial contracts).
• Mediators validate and ensure all required parties consent.
• Consensus happens per-domain, not globally, enabling scalability.

But large-scale financial networks need more:

• Global addressability of assets and contracts.
• Atomic transactions across multiple domains.
• Scalable, fault-tolerant sequencing that isn't tied to a single operator.

This is where the Global Synchronizer comes in. The synchronizer was launched in July 2024 and provides a single logical timeline for all domains. It doesn't mean all power sits in one box:

• The synchronizer itself is a distributed service (multiple operators can run it).
• Domains remain the units of trust and validation.
• Only metadata (not contract contents) flows through the synchronizer, preserving selective disclosure.

Think of it like air traffic control for financial transactions. Each airport (domain) manages its own flights, but there's a global system ensuring planes don't collide when crossing airspace. The difference? instead of broadcasting flight paths to everyone, only the relevant airports see the sensitive details.

This design makes Canton a true interoperable ledger-of-ledgers: a global network where institutions can maintain privacy, but still transact seamlessly.

You can learn more about this on the Global Synchronizer Foundation's website.

Why This Matters Now

Traditional settlement takes 2-3 days because banks can't trust shared state. Canton collapses this to near real-time by solving the distributed consensus problem with privacy guarantees.

• For trading firms: replace reconciliation nightmare with cryptographic certainty.
• For risk managers: See counterparty exposure in real-time, not T+2.
• For regulators: Audit trails with mathematical integrity, selective disclosure for compliance.

The technology is live: major European banks are already settling trades this way.

What Happens When Things Break?

Unlike blockchain's "halt everything" approach, Canton degrades gracefully:

• Domain goes down? other domains keep running
• Sequencer fails? backup sequencers take over (no global state to reconstruct)
• Network partition? affected domains pause, others continue

This is partition tolerance designed for trillion-dollar markets that can't afford to stop.

Conclusion

Canton isn't just another blockchain: it's a glimpse into finance's distributed future. We've moved from trust through intermediaries to trust through mathematics, from eventual consistency to immediate finality.

But Canton is just the foundation. The real magic happens in the message queues, the microsecond-latency systems, and the distributed algorithms that power modern trading.