How to Regulate Bitcoin? Decentralized Regulation for a Decentralized Cryptocurrency
International Journal of Law and Information Technology (2019), 27(3), 266-291.
31 Pages Posted: 24 Apr 2019 Last revised: 31 Mar 2020
Date Written: March 26, 2019
Bitcoin is a distributed system. The greatest dilemma it poses to the current legal and regulatory systems is that it is hardly possible to regulate a distributed network in a centralized fashion as decentralized permissionless blockchain-based cryptocurrencies are antithetical to the existing centralized structure of monetary and financial regulation. By shifting the policy debate from whether to regulate bitcoin and other decentralized cryptocurrencies to how to regulate them, this paper proposes a more nuanced policy recommendation for regulatory intervention in the cryptocurrency ecosystem. This policy approach relies on a decentralized regulatory architecture that is built upon the existing regulatory infrastructure and makes use of the existing as well as the emerging middlemen in the industry. It argues that instead of regulating the technology or the cryptocurrencies at the code or protocol layer, which might not be desirable, even if feasible, the regulation should target the applications and use-cases of cryptocurrencies. Such a regulatory strategy can best be implemented through directing the edicts and interdictions of regulation towards the middlemen, and can be enforced by the existing financial market participants and traditional gatekeepers such as banks, payment service providers and exchanges, as well as new emerging participants, such as large and centralized node operators and miners that are likely to replicate the functions of the traditional gatekeepers.
Keywords: Cryptocurrency, Bitcoin, Money, Payment, Banking, Regulation, Decentralization
JEL Classification: E42, E51, E58, G01, G23, G28, K22, K23, K24
Suggested Citation: Suggested Citation