Intermediary/Middleman

What is an Intermediary/Middleman?

In the financial world, an intermediary is an agent who is the broker between different parties interested in hashing out a deal. The term intermediary is used interchangeably with the term middleman, which is self-explanatory.

For instance, if a financial institution like a commercial bank is looking for a formal association with another business, both parties will employ an intermediary to facilitate the partnership and ensure it comes to fruition. There are several advantages of using an intermediary; they offer security, liquidity, and economies of scale for concerned parties.

Intermediaries in Cryptocurrency

Relevant examples of intermediaries include cryptocurrency exchanges, credit unions, investment banks, mutual funds, and more. In the cryptocurrency space, intermediaries can be a contentious subject. Generally, platforms like Bitcoin and Ethereum have become self-sustaining mechanisms that operate without go-betweens.

Critics have been vocal about injecting intermediaries and introducing regulations in the cryptocurrency market. However, one of the main benefits of blockchain technology is that it creates trustless and permissionless links between cryptocurrency ecosystems. This model is far from the routines adopted by financial institutions like banks, which use go-betweens to conduct numerous transactions.

Before the advent of cryptocurrency, intermediaries were considered a prerequisite for any digital transaction. Two parties involved in the agreement and a trustworthy third party would serve as the middleman. However, blockchain prides itself as an anonymous public ledger, and its ardent fans argue it is better without intermediaries. If anything, they cite the frequency and speed of transactions, which would be slower if intermediaries were involved.

Advantages of Intermediaries

Although the presence or lack thereof continues to be a sore subject for cryptocurrency users and commentators alike, the idea has various benefits if applied appropriately. For example, go-betweens provide an additional layer of security when deals are agreed upon, or transactions are conducted.

Typically, intermediaries are considered cost-effective, although plenty of platforms add a modest amount as a profit margin. Economies of scale entail that costs are reduced in the long term, which makes it easier to add intermediaries to the equation.