The regulatory puzzle of decentralized cryptocurrencies: opportunities for innovation and hurdles to overcome

• Main Authors: Dhali, Mohsin, Hassan, Shafiqul, Zulhuda, Sonny
• Format: Article
• Language: English; English
• Published: EnPress Publisher, LLC 2024
• Subjects: HG Finance; HG201 Money; JF491 Legislation. Legislative process. Law-making; K1001 Commercial Law; T58.5 Information technology
• Online Access: http://irep.iium.edu.my/113821/8/113821_%20The%20regulatory%20puzzle%20of%20decentralized.pdf; http://irep.iium.edu.my/113821/9/113821_%20The%20regulatory%20puzzle%20of%20decentralized_Scopus.pdf; http://irep.iium.edu.my/113821/; https://systems.enpress-publisher.com/index.php/jipd/article/view/3377
• Institution: Universiti Islam Antarabangsa Malaysia

Decentralized cryptocurrencies, such as bitcoin, use peer-to-peer software protocol, disintermediating the traditional intermediaries that used to be banks and other financial intermediaries, effectuating cross-border transfer. In fact, by removing the requirement for a middleman, the technology has the potential to disrupt current financial transactions that rely on a trusted authority or intermediary operator. Traditional financial regulation, primarily based on the command-and control approach, is ill-suited to regulating decentralized cryptocurrencies. The present paper aims to investigate the policy option most suitable for regulating decentralized cryptocurrencies. The study employs content analysis method to effectuate the purpose of the study. The paper argues that the combination of both direct and indirect regulatory approaches would be a feasible option for regulating decentralized cryptocurrencies. The absence of centralized authority and the borderless nature of decentralized cryptocurrencies would make them antithetical to centralized direct regulation. Therefore, the findings of the study suggest that regulators should focus on regulating intermediaries bridging the connection between the online world (crypto ecosystem) and the physical world (the point of converting crypto into fiat money). These intermediaries can work as passive actors or surrogate regulators who are indirectly responsible for implementing policy options on behalf of the central authority.