A very interesting discussion is how do you classify these crypto assets. In Alex Tapscott book “The Blockchain Revolution” he splits the crypto assets into seven categories: Crypto taxonomy:
- Cryptocurrencies – The main category at the moment and includes Bitcoin, as well as the smaller players, such as Monero, Zcash and Dash.
- Platform tokens – These are the tokens that power the decentralize platforms such as Ethereum, NEO and ICON. On each of these platforms the token is used to pay for dApps (decentralized apps) that use the network and to fund new dApps and network uses
- Utility tokens – these are used within the dApp to access services or to be given discounts etc. Many of these tokens come from the ICO’s (see next section) and have mainly been used to raise funds for the projects on Blockchain
- Security tokens – these are tokens that represent value in the same way that the current securities (stocks and shares) do. There are usually no physical assets involved and the tokens are exchanged via contracts between parties. These could replace all current securities which are traded around the world
- Natural asset tokens – there have been a large number of tokens where they are backed by natural physical assets, such as gold or oil. The token is used to transfer this value and settling the trade.
- Crypto collectibles – these are the functional tokens such as the infamous crypto kitties and new tokens like aircoin
- Crypto fiat assets – a very controversial, but obvious use case, using cryptocurrencies instead of traditional currencies. Early 2018, Venezuala, launched its own cryptocurrency – Petro – aimed at avoiding the US imposed sanctions. The Petro was backed by the country’s oil supply and mineral reserves.
Will the Bank of England or the Federal Reserve launch a crypto-pound or a crypto-dollar? At the moment they clearly say no, but why wouldn’t they? After all a crypto currency is a digital asset – if you look at the current banking system, your dollar or pound is now a digital asset.
The difference is the current digital dollar or pound is not yours, and there are more of them than the real assets that back them. This is why we have inflation, deflation and quantitative easing – all mechanisms for the control authorities to take your money.
A decentralized currency, will remove the control of the centralize authorities and give you control of your money – why would you not want that? Remember, in the EU, the government can take 30% of your cash assets if they choose…and there is nothing you can do about it! And if they don’t take your money that way, they will take it via inflation and taxes!
The Tapscott crypto taxonomy is one of the first and is a great way to start to classify this new set of assets.
The complexity will be to get all entities, authorities and parties to agree to a new classification, and then the regulation to follow and build on this. We have a long way to go, and I am sure there will be a few false starts, but the crypto market is here to stay and will change and morph over time.