How to regulate bitcoin? Decentralized regulation for a decentralized cryptocurrency

Abstract

Bitcoin is a distributed system. The dilemma it poses to the legal systems is that it is hardly possible to regulate a distributed network in a centralized fashion, as decentralized cryptocurrencies are antithetical to the existing centralized structure of monetary and financial regulation. This article proposes a more nuanced policy recommendation for regulatory intervention in the cryptocurrency ecosystem, which relies on a decentralized regulatory architecture built upon the existing regulatory infrastructure and makes use of the existing and emerging middlemen. It argues that instead of regulating the technology or the cryptocurrencies at the code or protocol layer, the regulation should target their use-cases. Such a regulatory strategy can be implemented through directing the edicts 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 large and centralized node operators and miners.