The Regulation of Cryptocurrencies from Disintermediation to Reintermediation

The development of cryptocurrencies such as Bitcoin has posed new regulatory and government control problems. Disintermediation is a significant issue. It is often said that the open and decentralized character of cryptocurrencies would result in the abolition of intermediaries and the capacity of governments to control the network. Brito, Shadab, and Castillo (2014) believe that a peer-to-peer system such as Bitcoin may remove intermediaries without eroding the underlying behavior. So visit https://cryptotrader.software to remove intermediaries. Symmetric encryption claim in their Statement of Bitcoin’s Freedom that Cryptocurrency does not accommodate to existing power structures; it seeks to abolish them. Controlling information will be prohibitively expensive in a society without intermediaries and just dispersed consumers.

Internet and the Disintermediation Myth

In this regard, cryptocurrencies extend the line of cyber-libertarianism thought that dates back to John Perry Barlow’s 1996 Declaration of Cyberspace’s Independence. However, as the internet’s growth progressed, it became clear that intermediaries are required to fulfill economic and social tasks, and they may be regulated. In the early years of the worldwide web, some conventional intermediate functions were reduced in electronic marketplaces. New intermediate roles have developed, with the most critical being the aggregation of digital information, the provision of trust connections, and the maintenance of market integrity. The development of networking did not remove intermediates; somewhat, it altered their nature.

As a result, a distinguishing feature of the internet is the introduction of middlemen into conversations and transactions between third parties. Governments can effectively regulate a decentralized network by focusing on intermediaries.

The Equivalence of Internet and Cryptocurrencies  

In two critical ways, cryptocurrencies are analogous to the internet. At begin, cryptocurrencies are decentralized information networks. Money has a technical purpose in the literature of financial theory acting as a mnemonic mechanism for economic transaction. Cryptocurrencies, which enable the sale of digital tokens and the writing to a public ledger, are a practical implementation of this helpful theory of money. Second, bitcoins are a source of abundant energy. As with the internet, they are protocols that enable the development of new financial applications. These parallels have prompted some practitioners to coin the phrase internet of value to refer to cryptocurrencies, complementing today’s internet of information.

They will follow a similar growth path of intermediation by the similarities between cryptocurrencies and the internet. By definition, information networks are bidirectional marketplaces, necessitating the establishment of intermediaries capable of supplying both sides of the market. This is exacerbated by the fact that middlemen are required to overcome the market power and capital requirements inherent in traditional economic models, even if virtual currencies are much superior. While the unique nature of digital currencies guarantees a complex and unpredictable environment for the development of new intermediaries, disruptive technologies and productivity improvements will eventually result in aggregation and bureaucracy.

Cryptocurrencies are now in a silent period of reintermediation: the fundamental innovations (internet, cryptography, and blockchain) have been created, but they have not yet been wholly integrated into mainstream social and economic activities. To do this, intermediaries will be made throughout time as a result of market forces.

Reintermediation of Cryptocurrencies and Policy Choices

Among the services offered are trading platforms, payment gateway services, integrators, processing pools, and payment systems. This is the logic of economics and networks at work. As Mallard, Méadel, and Musiani (2014) demonstrate, even in decentralized networks where all peers are created equal, disparities in participation, technical expertise, and available resources will manifest. Trust will naturally flow toward more significant nodes in the network, structurally speaking.

This intermediation process will provide many opportunities for regulatory monitoring. These new intermediates may be susceptible to conventional intermediary control techniques. While a centralized cryptocurrency sector would ease government control, it must be weighed against internet innovation and commercial endeavors. Cryptocurrencies result from the merger of the financial and software industries and will wreak havoc on the highly protected banking industry.

Regulatory decisions will influence the rate at which this transition occurs. Numerous new innovators and entrants are internet intermediaries, unencumbered by bank legacies and more adept at radical, rather than gradual, innovation. They lack, on the other hand, specialized financial and regulatory knowledge. In this environment, regulators’ responsibilities extend well beyond prudential supervision of the current institutional architecture. It should be about maximizing the use of technology to benefit the actual economy. The critical issue is whether they can establish a forward-thinking system that provides sufficient supervision of new participants while still allowing for innovation.

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