Internet Architecture and the Layers Principle for Regulating Bitcoin

The financial services industry’s information-intensive nature has long identified it as ripe for transformation by information technology. Finance, on the other hand, was until recently domesticated by conventional banks and payment processors. We are already seeing the internet reshaping the world of high finance. The watershed moment came in 2009, with the invention of bitcoin trading. Bitcoin builds on what we already know about the internet and encryption to provide a platform for financial innovation, just as the internet does for digital businesses.

Bitcoin as The Financial Industry’s Logical Layer

As the internet and money begin to influence one another, we have few conceptual anchors to represent the collision of cyber law and policy with the forms of interaction in the Bitcoin ecosystem. We can harness Bitcoin’s economic advantages while resolving law enforcement concerns.

Bitcoin has many of the features of the internet, which makes it the main platform for inspiration and invention in the modern age. To comprehend Bitcoin’s importance, it’s necessary to understand the internet’s layer architecture. The internet is a completely impartial medium. The separation of an upper ‘protocol stack’ is important because it allows anybody to build applications without needing permission, thus decentralising innovation and putting it in the hands of independent entrepreneurs.

Thus, the true value of Bitcoin is not in its potential to replace money but in its capacity to serve as the internet of money. Because each Bitcoin transaction is specified by code, money may be designed to have constraints attached. For example, funds will be distributed only when a third party approves, or individuals would support a project only after a certain threshold is met. Additionally, Bitcoin’s technology enables continual micropayments, which are not feasible with conventional payment systems owing to prohibitively high transaction fees. This enables the first time that fine-grained usage-based pricing is feasible. Bitcoin may even be used to represent real goods. For example, a vehicle may be started only with a Bitcoin token. Although it is difficult to anticipate the kind of applications that may develop, one thing is certain: waves of financial innovation will occur on the Bitcoin platform.

A Multi-Layer Model Of Bitcoin’s Ecosystem

Over the last two years, a thriving ecosystem surrounding Bitcoin has emerged, spanning the top three levels of the internet architecture: Whatever model is chosen, they all represent the internet’s withstanding, from the infrastructural facilities that controls data flow to the algorithms and software that make use of the network hardware, as well as the encrypted information stored and transferred in virtual worlds. Ultimately, the cyber-experience is shaped by end customers and enterprises. The upper levels are reliant on the activities of the lower layers, but not conversely. These models enable us to identify and classify Bitcoin players and activities and explain the interactions between them in terms of relative strength and influence. To keep things simple, we’ll use the four-layered model in this post.

  • Logic layer:In 2009, a programmer using the pseudonym Satoshi Nakamoto created the Bitcoin protocol. It has its origins in the Cypherpunk culture, led by a handful of cryptographers with a disproportionate amount of power in the digital world (Grinberg, 2012). Bitcoins are created by early pioneers known as miners using software programs that follow a mathematical formula. Intrigued by the promise of cryptographic payments, these technophiles set the groundwork for creativity by allowing anybody to build on top of the Bitcoin protocol.
  • Bitcoin would not get public notice if it were not for players in the information layer. They act as adapters between the technical community and the economy, two networks that would otherwise be incompatible (Böhme, 2013). They act as middlemen, facilitating the general public’s access to Bitcoin through user-friendly apps. For instance, exchanges allow non-miners to trade bitcoins for traditional currencies. Individuals may keep bitcoins safely and easily using wallet and escrow services. Payment processors that provide integration services make accepting bitcoins from customers simple for businesses. Traditional financial institutions and established payment systems may potentially embrace Bitcoin technology in the future to improve their efficiency and competitiveness.
  • The user layer:Bitcoin has a wide user base, ranging from dealers and gamblers looking to benefit from the currency’s price volatility to individuals sending donations to users making legal payments. A growing number of shops, merchants, and businesses now accept Bitcoin. On the other side, criminals are drawn to Bitcoin’s anonymity to conduct illicit operations such as money laundering, terrorist funding, drug trafficking, and online gambling.

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