Wall Street and regulators are entering the crypto market and fundamentally altering the intended purpose of Bitcoin. Securitization and regulation are antithetical to what crypto stands for. The new design infrastructure of exchanges, custody, and bank-issued stablecoins run contrary to Bitcoin’s standing principles. Those of decentralization, censorship proof, and history verification. The new system of privately owned exchanges that hold investor’s private keys and control the stability of coins is nothing but disguised centralization. And the hybridization of both systems is sure to cause an uproar in the community and create operational conflicts.
Satoshi Nakamoto’s vision for Bitcoin was to replace the current centralized banking system with a decentralized Peer-to-Peer network. A transparent, immutable, ledger that is not controlled by any one person or entity. And that can be audited by the public at anytime. Unfortunately, Satoshi’s focus on the technicalities of the software discounted for the inevitable financialziation of the design.
After a prolonged battle against Bitcoin, the financial world is finally acknowledging its technology, utility, and profitability. Morgan Stanley issued a report on Oct 31, titled “Bitcoin Decrypted: A Brief Teach-in and Implications.” In it, the bank formally acknowledge Bitcoin as a new asset class. This is a milestone in the road to the mainstream adoption of cryptourrencies. However, financial institutions have already been heavily involved with the development of the crypto ecosystem since its inception.
Banks, investment firms, and hedge funds back start-ups, ICOs, exchanges, and now stablecoins. The problem is that these institutions form the very same infrastructure that Bitcoin aims to replace. And their efforts run directly contrary to Bitcoin’s goal. For example, the upcoming Bakkt exchange plans to create a super-secure digital vault to store all the cryptocurrencies offered by the exchange.
In addition, the exchages will also store user’s private keys and replace them with user friendly passwords. And bank issued stablecoins will replace the variety of volatile cryptocurrencies in existence. In addition, Bakkt stated that all transactions will be done in fiat, converted into Bitcoin, and deducted from the account balance. Therefore, no direct Bitcoin to Bitcoin transactions will be conducted.
Government rules and regulations are equally adverse to Bitcoin and the crypto industry. Bitcoin’s design allows it to operate independently and without oversight. So any form of legal supervision is not only intrusive but unnecessary. In its most extreme form, regulation will make cryptocurrencies and exchange subjective to a myriad of unclear rules. Case in point are the dozens of ICOs and exchanges (like Broker1 and EtherDelta) shutdown by the SEC for violating securities laws. Furthermore, regulation also revert control to a central authority and censorship.
Institutional custody, storage, and regulation of crypto currencies defeat the purpose of their existence. It replaces P2P interaction with a centralized hub that controls and restricts access to the public. And as far as regulation goes, it helps as much as it damages crypto. While it helps reduce price manipulation and fraud, it gives control to the government. In which case, Bitcoin becomes another political tool used to serve special interest groups. The financialziation and regulation of Bitcoin are a paradox that needs a solution to succeed to the benefit of all.