Ethereum needs to fix its problems. As DeFi projects flock to Ethereum, experts warn the network is not yet ready to support the frenzy.Martin Froehler, a mathematician, former hedge fund manager, and founder of Austrian crypto trading platform Morpher, told Cointelegraph that although Ethereum is the “best thing [the blockchain industry] has” for DeFi, the current capabilities of the network are not enough:“Ethereum can only handle about 15 transactions per second and has a block-time of 15 seconds, which is an eternity in finance. By design everyone interacting with it needs Ether. That is a huge barrier to entry and mass adoption.”Froehler considers Ethereum the most decentralized smart contract platform. But because the network still has issues, developers have had to look for solutions to counter them. Froehler added: “There is cryptographic proof for everything that happens on the sidechain on Ethereum. (…) People are able [to] trade without needing Ether. They don’t pay any fees, enjoy a settlement time of one second, and are completely independent of the many congestions on the Ethereum network.”Many industry players feel Ethereum did not anticipate the DeFi hype, and even with the upcoming network upgrade, Ethereum 2.0, the network is still not ready to service DeFi. Ethereum 2.0 should improve performance, but its high gas prices may scare off new users. Sergej Kunz, CEO of decentralized exchange 1inch, said during Cointelegraph China’s DeFi Marathon event on Sept. 3, that the Ethereum infrastructure lacks the capacity to host the DeFi environment:“You have to rethink everything. You can migrate smart contracts to the code but it’s not scalable. To be able to scale, you have to create standards and bring new protocols based on the new sharded architecture, such as NEAR which is similar to Ethereum 2.0.”At the same event, Mounir Benchemled, founder and CEO of middleware layer ParaSwap, pointed out that the complexity of explaining how layer-2 works to end-users “and the risk of not being able to pay the funds immediately to these users” cause the most concern. Benchemled also said that it is not practical for all DeFi projects to move to Ethereum 2.0:“For it to work, all applications would need to move towards one single platform. Major projects might have consensus. However, for other projects who have their own agendas, it might be hard. New bridges will be built to allow interoperability.”Despite the challenges ahead for the Ethereum blockchain, Morpher’s Froehler joins the other pro-DeFi voices in saying, “DeFi is here to stay.”

New NFT marketplaces may even leave Ethereum altogether to deal with high gas fees. High gas prices have become a problem for non-fungible token (NFT) marketplaces, especially as they look to mint at scale, the founder of a start-up said. Sean Papanikolas, founder of NFT marketplace Cargo, told Cointelegraph in an interview that the NFT sector is at an inflection point. But scalability weighs on new players in the sector now that gas prices have spiked. He said:"Now, in 2020, platforms are starting to see the scaling issue now due to the spikes in gas prices. Some platforms have halted minting while gas is high and other platforms see a major decline in activity."High gas prices have caused some platforms to start working on layer-2 solutions and some are eyeing other chains, leaving Ethereum altogether, warned Cargo's founder. To counter higher gas fees, Papanikolas said Cargo launched a solution based on ERC-721 and ERC-2309 standards. But if blockchain companies want to expand their businesses within the NFT landscape, Papanikolas warned it’s not going to be as easy as they think:“I think blockchain companies need to be prepared for the level of software engineering effort it will take to overcome the technical hurdles and the limitations of smart contract development on Ethereum and then how those pieces will work with traditional systems. The competition will continue to increase as well.”Currently, users can spend a small amount of Ether (ETH) at current prices to secure gas that can be used later without the risk of the price going up. This is something other industry players have talked about in the past. In a previous interview with Cointelegraph, Qtum co-founder and lead developer Jordan Earls said this causes the network “to not respond properly to an increase in gas prices like we see today, as some people with access to these tokens ca use this cheap gas now, but also get their transaction highly prioritized without actually spending any ETH.” Other companies also pointed out that NFT firms are exploring other means to avoid high gas prices.

Check out this week’s Bad Crypto podcast. It’s been a difficult week for Bitcoin this week. The price has fallen about 5 percent over the last seven days to drop beneath $10,400. It could bounce but if it continues downwards, it might drop below $10,000 and get dangerously close to the CME gap.One sign that the price might fall further has been a decline in the number of Bitcoin addresses holding a single Bitcoin. They’ve reached a four-month low. But Tyler Winklevoss still thinks that Bitcoin is better than gold, and  Microstrategy CEO Michael Saylor has moved from bear to bull. His company recently bought almost 16,800 Bitcoins over 74 hours, spending about $175 million. Paypal is bearish too. The payments firm is working on a way to allow merchants to accept cryptocurrencies.In Brazil, fund manager Hashdex has made an agreement with Nasdaq to launch the world’s first crypto asset exchange-traded fund. The fund will trade on the Bermuda Stock Exchange. And while Hashdex is deepening crypto trading, meat processing firm JBS is using the blockchain to monitor its supply chain and ensure that none of its suppliers are raising cattle on illegally deforested land.Australia also sees an opportunity to secure food supplies with the blockchain. The government-backed agricultural supply chain platform, Entrust, will use Hedera Hashgraph to ensure that wine from the Clare Valley region isn’t counterfeit.In Russia, the government has said that it will prioritize the development of blockchain technologies, while in Venezuela, the Maduro government has issued a decree to regulate crypto mining. Miners in the country now need a license.If you want to buy a country, or at least parts of one, a new partnership between Upland and Tilia, the makers of Second Life, lets players sell their virtual property and turn digital cash into fiat. Alternatively, you can hang around in Bakersfield. A Bitcoin Cash fan has been leaving stickers around the city with QR codes, enabling people to download gifts of up to $500 worth of the cryptocurrency. The “Bitcoin Man of Bakersfield” is trying to encourage the take-up of cryptocurrencies.The Bitcoin Man has already given away $1,100 and plans to give away another $2,000 but the airdrop of 28,000 MEME tokens has helped to push the price of the token up to $1,175. The giveaways were made up of batches of 250 tokens each.Craig Wright could have done with some of that luck this week. The Satoshi-pretender lost a plea for summary judgment and will go to trial in January in a billion-dollar Bitcoin lawsuit. And finally, Brock Pierce is hoping to do better. The former Mighty Ducks child star and Bitcoin billionaire has managed to get onto 15 states in his run for the presidency. He believes that cryptocurrency is the 21st-century cure for America’s 21st-century problems.Check out the audio version here:Joel Comm is an internet pioneer, New York Times best-selling author, futurist speaker and co-host of The Bad Crypto Podcast. That’s a fancy way of saying he writes words, says things and loves to play with cryptos.The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

In issuing a no-action letter, the SEC took a more nuanced position on virtual assets. The U.S. Securities and Exchange Commission (SEC) took a major step toward streamlining digital asset securities settlement by compressing the previous four-step process into three in a bid to reduce operational risk for broker-dealers.The SEC issued a no-action letter on Sept. 25, stating it will not penalize any broker-dealer operating an alternative trading system (ATS) that trades digital asset securities — if they adhere to the new guidelines.According to the regulator, several ATS want to follow a streamlined model in cases where there is no custody over the assets traded. Most ATS follow a four-step process: first, the buyer and seller send orders to the ATS, second, the ATS matches the orders, third, the ATS notifies the buyer and seller about the matched trade, and lastly, the transaction is settled bilaterally, either with each other or through their custodians.But the Financial Industry Regulatory Authority (FINRA) requested more clarity on this process in cases in which the broker-dealer may not take physical custody of the asset.Some broker-dealers felt this four-step model exposed them to too much risk. The ATSs requested that they be allowed to streamline the process. According to the no-action letter, this process would involve:Step 1 - the buyer and seller send their respective orders to the ATS, notify their respective custodians of their respective orders submitted to the ATS, and instruct their respective custodians to settle transactions in accordance with the terms of their orders when the ATS notifies the custodians of a match on the ATS;Step 2 - the ATS matches the orders;Step 3 - the ATS notifies the buyer and seller and their respective custodians of the matched trade and the custodians carry out the conditional instructions.Broker-dealers, under paragraph (b) of Rule 15c3-3 of the SEC (the Customer Protection Rule) are required to “obtain and maintain physical possession or control of all fully paid or excess margin securities carried by a broker-dealer for the account of customers.” The rule protects customers from losses or delays in accessing their security in case the ATS fails. But this becomes difficult when dealing with digital assets.The SEC said that broker-dealers that choose the streamlined model would not face any enforcement action in connection with the Customer Protection Rule. The letter notes that broker-dealers seeking to implement this process have addressed concerns over their custodial role by noting that they operate with a minimum of $250,000 in capital, and that they clearly inform their customers that the broker-dealer operator cannot guarantee or take responsibility for settling trades. They have also explained that they ensure they have procedures to assess security tokens’ registration with the SEC and that the assets comply with federal law.The regulator, however, made it clear that the no-action letter “solely addresses an ATS trading digital asset securities under the circumstances set forth in this letter and does not otherwise address broker-dealer custody or control of digital asset securities.”Although the letter expresses the SEC’s staff opinion on enforcement, and is not a legal determination, it is nevertheless one more indication that regulatory oversight of virtual assets is becoming more refined and nuanced.The SEC has been more focused on regulating digital assets in the past few years and throughout the tenure of chairman Jay Clayton.

Without constant nurturing through communication and collaborative efforts, the pursuits of legislators and businesses would be fruitless. Repeatedly, proponents of disruptive technologies have proven that regulation and innovation have an immense potential to actualize a mutually beneficial existence. The often delicate relationship between innovators and regulators — which may be mired by antagonism — is fundamental to the functioning of the global economy, especially at times as challenging as we are facing now. The fuel that keeps the fire of the important relationship between regulators and businesses alight — like any — is communication and collaboration. This could not be more apt when it comes to the innovators behind distributed ledger technology and the regulators in overseeing the space. Ideas surrounding DLT first arose in the early 90s, however, it was not until 2009 that the first block of what we now know as blockchain was mined. In 11 short years, blockchain and DLT more generally have had tremendous success in garnering attention from the financial community and the wider public. Just this year, Big Four audit firm Deloitte’s 2020 Global Blockchain Survey found that business leaders now see blockchain as “integral to organisational innovation,” while analytics agency Gartner has forecasted that blockchain technology will have generated $3.1 trillion of value-add to companies around the world by 2030. Related: A minister’s look at healthcare: Providing fertile ground for blockchain innovationThe regulation necessity While mainstream adoption of the blockchain industry is gathering pace, I believe it will not succeed without regulation; in fact, it needs it to survive and, indeed, to thrive. It is incumbent on regulators to strike a balance and allow companies operating in this industry with the space to continue operating at the cutting edge of innovation in a sensible and safe manner. Finding this balance and the future success of decentralized finance is inexorably linked. It will take a whole-of-industry approach where all stakeholders uphold a commitment of communication and collaboration with the regulators to ensure the harmony that the industry needs. However, the burden of finding this balance is not just on the industry itself but on regulators and policymakers, too. Standards are commonplace across every industry, and this one is no different if it is to thrive and succeed in the main street of finance.Meanwhile, overregulation could stifle crypto markets that are based on distributed ledger technology. Of course, it is possible to find the equilibrium point that allows the realization of the full potential of this technology within the boundaries of the regulations that govern traditional markets. Some governments are working closely with key players in the field. In January 2018, Gibraltar became among the first jurisdictions to introduce a regulatory framework for DLT providers. Since then, the Gibraltar Financial Services Commission has awarded multiple licenses to global industry leaders, with a number of active applications currently under review. This measured regulatory response was only possible through open communication between the regulators and the innovators. Similarly in Switzerland, its remarkably progressive stance toward cryptocurrencies and distributed ledger technologies has propelled the country ahead of the pack and closer to its aim of becoming the first “crypto nation.” In short, there are at least 45 central banks around the world that have publicly expressed their efforts to develop central bank digital currencies by utilizing DLT. This proves that the appetite to embrace these technologies not only exists among business leaders, it is burgeoning among legislators. There is little doubt that regulators will follow suit by working with the private industry to achieve the desired equilibrium but in order to achieve this, much more needs to be done when it comes to communication and collaboration. The establishment of working groups between DLT companies and regulators, and government bodies and watchdogs should become commonplace. DLT will not reach its full potential if there is still a semblance of distrust among the general public. Through open dialogue, we can work together to ensure that the market is regulated and trustworthy and that regulators have faith in the technology, while those involved in the creation and use of the technology can enjoy the immense benefits it brings. The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.Albert Isola is Gibraltar’s minister for digital and financial services with the primary responsibility of raising Gibraltar’s profile as a well-regulated financial services center, leading the way in DLT and online gaming regulation. Minister Isola previously served as Gibraltar’s minister for commerce where he played a central role in spearheading Gibraltar’s purpose-built DLT regulatory framework, which was introduced in January 2018 for firms using blockchain to store or transfer value.