This week, MIT’s Digital Currency Initiative (MIT DCI) unveiled the code of its latest research project, PArSEC (Parallelized Architecture for Scalably Executing smart Contracts).
PArSEC, a tailor-made CBDC source code for central banks, presents itself as a centralized solution that sidesteps the use of blockchain while still accommodating Ethereum smart contracts. The initiative is a part of Project Hamilton, a collaborative effort with the Boston Federal Reserve.
The significance of PArSEC lies in its promise of scalability for potential central bank applications. According to MIT, the project can support 118,000 transactions per second (TPS) for Ethereum-style ERC-20 transactions, with an average transaction time of under 1.6 seconds. This makes it several times more efficient than traditional blockchains that process around 400 TPS.
One of the key supported use cases of PArSEC is the creation of automated market makers (AMMs) that enable 24/7 FX transactions for cross-border payments. MIT’s research points towards the possibility of utilizing AMMs for trading bonds, tokenized securities, and repurchase agreements (repos). These use cases may enhance the efficiency of cross-border transactions and offer new possibilities for liquidity and asset management in the global financial system.
“The work the Digital Currency Initiative has been doing is interesting and shows just how far we still are from a real, functioning central bank digital currency,” said James Wester, Head of Cryptocurrency at Javelin Strategy & Research. “The release of this current project demonstrates some of the design choices that need to be made to ensure a digital currency can even support the scale and interoperability requirements for the various use cases being considered.”
PArSEC adopts an account-based approach for smart contracts, which differs from the UTXO model favored by other research modules in Project Hamilton. The UTXO model, akin to cash transactions, preserves privacy by not explicitly linking individuals to all their transactions. This contrasts with the account-based approach, where central banks could potentially have visibility into users’ transaction histories.
MIT’s PArSEC project brings exciting prospects for the future of CBDCs and blockchain technology. Its scalability and support for advanced use cases could revolutionize the way central banks and financial institutions operate.