There are many benefits that decentralisation, in the context of cryptocurrencies, has brought us. It allows for users like you and myself to transfer value without the involvement of a third party or central authority. There is also user anonymity, an individual’s purchases cannot be linked back to his personal identity. These advantages have no doubt contributed to the increasing popularity of cryptocurrencies. There is no question that the cryptocurrency space is objectively decentralised. However, can the regulation of the cryptocurrency space be such that the notion of the space being decentralised becomes a façade?
The most obvious way to regulate the cryptocurrency space would be to regulate the exchanges. These centralised exchanges such as Coinbase, Kraken etc are at the heart of many cryptocurrency transactions. It is this precise reason that there is a slowly growing push by central authorities to regulate these exchanges. There is no consumer protection or insurance schemes for individuals who are choosing to use these exchanges. A consequence of this lack of consumer protection is exemplified by the large losses suffered by those who used the Mt. Gox bitcoin exchange. Some of that governmental effort is already manifesting itself in tangible policies. The Chinese central bank recently ordered Chinese exchanges to follow anti-money laundering and foreign exchange regulations. Future regulation could be imposed to place more extensive obligations on exchanges to protect consumers and prevent illegal activity. For example, in order to prevent money laundering or the purchasing of illegal products, the disclosure of user information such as wallet addresses and transaction timings will likely be necessary. If regulation to this effect is adopted, then can the cryptocurrency space really be regarded as being decentralised? There would be little user anonymity, and a central authority would, to an extent, be involved in the cryptocurrency space via regulation.
Although increased regulatory measures aimed at centralised exchanges would likely harm the notion of a decentralised cryptocurrency space, the barriers to enacting those regulatory measures are very high. Knowledge regarding the implications of regulating blockchain technology is still limited. A balance has to be struck between encouraging the growth of this innovative space and preventing illegal activity and protecting users. Due to this, the regulatory process will likely be a slow going one.
Given the centralised nature of exchanges, and the risks that come with using them, there have been increasing calls for the wide spread use of decentralised exchanges. A decentralised exchange does not rely on a third party service to hold the customer's funds. Instead, trades occur directly between users. Using a decentralised exchange would mean that one would not have to disclose your personal details to anyone apart from the person that is buying or selling from you. A decentralised exchange would go a long way in resisting potential regulatory pressures that centralised exchanges would not be able to. However, as of yet, decentralised exchanges are not used as widely as their centralised counterpart, but this may change in the future.
As of now, the cryptocurrency space can definitely be regarded as being decentralised. However, there exists a certain tension between the decentralised nature of the blockchain and the centralised exchanges that are facilitating these ‘decentralised’ transactions. There is a risk that increased regulatory pressure by central authorities would, to an extent, erode many of the advantages that are afforded by decentralised blockchain technology (e.g. user anonymity). However, as of right now, the cryptocurrency space is still in its infancy and so are many regulatory measures across the globe. Thus, this question is one that can only really be affirmatively answered with the passage of time.
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