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Industry collaboratives, consortiums and vendors have been working to address the problem with scaling blockchain-based cryptocurrency transactions, both in terms of size and efficiency.

If successful, digital currency could rival traditional banking and even make credit cards obsolete, as a person’s bank account and credit would be tied to a public-private key infrastructure they – and not the bank – would control.

Despite the growing adoption and use of cryptocurrencies, the ability to make fast payments at scale using blockchain remains a challenge. To that end, MIT researchers have developed a more efficient transaction routing scheme called “Spider” that they say can speed up the movement of cryptocurrency four-fold.

The researchers plan to present more details about the technology at USENIX Symposium on Networked Systems Design and Implementation in late February.

[ Related: The top 5 problems with blockchain ]Current cryptocurrency networks allow only small amounts of data per block and take several minutes to process each transaction.

For example, Bitcoin ledgers average a throughput of between 3.3 and 7 transactions per second (TPS), while Ethereum reaches between 10 to 30 TPS. By comparison, Visa's networks process about 1,700 transactions per second (TPS) on average – and even more at peak load. 

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 While open and efficient because transactions in the peer-to-peer distributed ledger technology can be seen in real time, the blockchain performance problem is real. That's because every entry on a blockchain requires every node to process it, or come to a consensus on it.

Transacting off blockchain, known as “layer 2” topology, enables bidirectional processing, bypassing the distributed ledger's inefficiencies while still using its immutable properties to record completed transactions in a transparent way.

While there has been an emergence of scalable, bidirectional payment channel networks (PCNs), such as the Lightning Network and Raiden Network, completing payments on PCNs remains challenging. Bidirectional PCNs still face “channel saturation” because smart contract scripts controlling them automatically route transactions along the shortest path.

The result? Some escrow accounts are depleted more quickly than others.




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Because current inefficient routing schemes deplete users’ account balances frequently, the users must keep a lot of money in each account or frequently rebalance their accounts on the blockchain. PCNs rely heavily on bidirectional joint accounts — where both parties can receive and send money — so money can be routed between any users.

User B can have a joint account with user A, while also linking separately to user C. Users A and C are not directly connected, but user A can send money to user C via the A-B and B-C joint accounts, according to the researchers.

“Shortest-path routing can cause imbalances between accounts that deplete key payment channels and paralyze the system,” Vibhaalakshmi Sivaraman, lead author and a graduate student in MIT’s Computer Science and Artificial Intelligence Laboratory (CSAIL), said in a statement.

“Routing money in a way that the funds of both users in each joint account are balanced allows us to reuse the same initial funds to support as many transactions as possible.

”The researchers also adopted an algorithm that monitors data center congestion to identify queueing delays at congested accounts, which helps control the rate of transactions.

“Say user A sends funds to user C through user B, which has a long queue. The receiver C sends the sender A, along with the payment confirmation, one bit of information representing the transaction’s wait time at user B,” the researchers said. “If it’s too long, user A routes fewer transactions through user B.

As the queueing time decreases, account A routes more transactions through B. In this manner, by monitoring the queues alone, Spider is able to ensure that the rate of transactions is both balanced and as high as possible.

”The Spider topology allows cryptocurrency network users to invest only a fraction of funds in each account associated with a network and process roughly four times more transactions “off chain” before rebalancing on the blockchain.

The Spider routing scheme "packetizes" transactions and uses a multi-path transport protocol to achieve high-throughput routing in PCNs. Packetization allows Spider to complete even large transactions on low-capacity payment channels over time, while the multi-path congestion control protocol ensures balanced use of channels and fairness across flows, the researchers said in their research paper.

Ultimately, the more balanced the routing of PCNs, the smaller the capacity required — meaning, overall funds across all joint accounts — for high-transaction throughput, the school said.

“The MIT researchers’ network performance improvement techniques are akin to packet switching used commonly in the telecommunications systems and queue management used by many system/network management solutions to alleviate network congestion and traffic at data centers and other data aggregation points,” said Avivah Litan, a vice president of research at Gartner.

Through extensive simulations, the researchers said they demonstrated Spider processed 95% of all transactions using only 25% of the funds needed in traditional routing schemes.

“And [it] requires only one on-chain transaction for every 10,000 transactions routed to achieve full throughput on imbalanced demands,” the researchers said.

“The MIT researchers are cleverly applying existing techniques commonly used to improve network performance to blockchain channel solutions that have been developed to offload main-net transaction volume and subsequent performance bottlenecks,” Litan said.

“There is no shortage of clever mathematicians and computer scientists at MIT, so it’s no surprise they would develop this innovative solution for blockchain transactions.”

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Senior Reporter Lucas Mearian covers financial services IT (including blockchain), healthcare IT and enterprise mobile issues (including mobility management, security, hardware and apps).

United States Securities and Exchange Commission (SEC) Commissioner Hester Peirce has formally proposed safe harbor for token projects.

After initially floating the idea in August 2019, Peirce has now formally presented a regulatory vision that would create a safe harbor for projects that raise funds to build decentralized networks.

Peirce proposes to provide decentralized network developers with a three-year grace period

Speaking at the International Blockchain Congress in Chicago on Feb. 6, Peirce, also known as SEC’s “Crypto Mom,” has outlined her token safe harbor proposal.

The proposal would grant network developers a three-year grace period to build a decentralized network without fearing SEC legal action.

Within that period, developers would be “unrestrained by the registration provisions of the federal securities laws, so long as the conditions are met,” Peirce’s proposal suggests, according to a draft proposal shared with Cointelegraph by the SEC.

In other words, the three grace period grants compliant developers time to build a decentralized network as well as attract participants before they become a subject of strict regulatory proceedings by the SEC.

However, developers will still have to prove that they are indeed building an open source network and provide relevant disclosures in order to qualify for this exemption.

Token projects would be still subject to a number of SEC’s requirements 

As such, the initial development team should ensure that at the end of three years period, token transactions would not be securities transactions as the network matures into a “decentralized or functioning network on which the token is in active use.”

The proposal also suggests a multitude of important public disclosures such as data on source code, transactions, information on how tokens are generated or mined as well as the description of burning tokens, validating transactions and governance mechanisms.

At the same time, the proposed safe harbor would not be available to projects that have already been subject to disqualification as a bad actor under the securities laws, Peirce emphasized.

Additionally, the commissioner noted that the safe harbor would still reserve the SEC’s antifraud authority with respect to token sales under the safe harbor. Peirce’s drafted remarks read:

“Although the safe harbor would preempt state securities laws, it would not stand in the way of state anti fraud actions. If anyone lied in connection with selling tokens pursuant to the safe harbor, the SEC or a state could bring an enforcement action [...] We all know that there are plenty of those kinds of “projects” polluting the crypto space.”  

Community reactions

Commissioner Peirce’s proposal has been subsequently widely welcomed in the crypto community as the potential action would apparently bring provide the regulatory flexibility that would provide a healthy development ecosystem for innovation. Catherine Coley, CEO of U.S.-based digital asset marketplace Binance. US pointed out that Peirce’s proposal could become the “groundbreaking development” for crypto in the U.S. so far:

“If adopted, the proposed safe harbor could be the most groundbreaking development for the U.S. cryptocurrency market to date. [...] By putting development first and giving projects runway to build robust networks, the proposed safe harbor puts an important stake in the ground towards supporting American access and acceptance of digital asset markets. In the long run, it will help bring more Americans into digital asset trading and foster greater network participation.”

Katie Biber, general counsel of institutional crypto custodian Anchorage, said that the safe harbor framework is an “important next step to help innovation thrive, and we welcome the clarity it could provide.” Biber urged that the SEC should move promptly to adopt the proposal in order to “consider other innovative ways to increase investor choice in the digital asset space.”Steve Kokinos, CEO of blockchain protocol Algorand, noted that the Commissioner Peirce’s proposal brought blockchain and crypto community one step closer to finally achieving regulatory clarity. He said:

“The blockchain industry and regulators need to continue a healthy dialogue for the U.S. to truly become the global and responsible leader in blockchain innovation. Algorand is dedicated to supporting the U.S. government’s efforts to leverage these exciting new technologies, and to creating policy and regulations that protect the public while fostering innovation.”

However, some industry experts have subsequently expressed skepticism over Peirce’s proposal. Writing to Cointelegraph, Preston Byrne, a lawyer specializing in crypto, cautioned that the proposal is not official in its current form:

"It's important to remember that, at least so far, these appear to be unofficial comments by Commissioner Pierce and not a statement of agency policy. That said, the proposal continues the rather broken and highly subjective "if it's decentralized, it's not a security" logic the SEC has followed since declining to take enforcement action against the Ethereum crowdsale."

A member of Peirce’s staff told Cointelegraph that the proposal will be published on the SEC’s official website later today.

Legislation regulating the operations of cryptocurrency firms in Singapore comes into effect today, Jan. 28.

The new Payment Services Act will regulate cryptocurrency payments and trading enterprises under some aspects of the regulatory regime that currently governs traditional payment services and require them to hold a license.

Crypto payment services must also comply with the Financial Advisers Act, Insurance Act, Securities and Futures Act and the Trust Companies Act.

The new rules place crypto services under the oversight of the Monetary Authority of Singapore.

The regulator announced in a press release published earlier today that the new framework is expected to “enhance the regulatory framework for payment services in Singapore, strengthen consumer protection and promote confidence in the use of e-payments.

” The regulator’s Assistant Managing Director Loo Siew Yee said:

“The Payment Services Act provides a forward-looking and flexible regulatory framework for the payments industry. The activity-based and risk-focused regulatory structure allows rules to be applied proportionately and to be robust to changing business models. The PS Act will facilitate growth and innovation while mitigating risk and fostering confidence in our payments landscape.”

Licensing requirements

The new regulations require cryptocurrency-related firms to apply for operating licenses such as a money-changing license, a standard payment institution license and a major payment institution license.

According to a Jan. 27 Bloomberg report, Japanese cryptocurrency exchange Liquid and its London-based competitor Luno reportedly plan to apply. Liquid CEO Mike Kayamori said, “We welcome the Act with open arms.

”As the cryptocurrency space becomes increasingly regulated, many jurisdictions are setting licensing requirements for cryptocurrency businesses.

Particularly famous is the case of the stringent BitLicense introduced in the state of New York, which the regulator amended for the first time in nearly five years in December 2019.

Malta introduced licensing requirements for cryptocurrency businesses in July 2018 and received queries from 21 cryptocurrency exchanges seeking authorization to operate in the country.

Japanese cryptocurrency exchanges are required to register with the Financial Services Agency since the introduction of that country’s Payment Services Act in April 2017.