Why we should stop talking about “cryptocurrencies.”

One of the problems in trying to learn about the emerging world of crypto is that the important words don’t always mean the same thing, and sometimes they are used in ways that are misleading.

Even terms as seemingly basic as “coin” and “token” are not used consistently. In a technical sense, there is agreement that there is a distinction between the two, which relates to whether the interest is hosted on its own blockchain or a different platform (such as Ethereum). Coins have their own blockchain, while tokens are hosted elsewhere. However, there are numerous instances where “coin” is used to mean only crypto designed to function solely as a replacement for fiat currencies. Sometimes “coin” and “token” are treated as synonymous, where both words cover the entire universe of cryptoassets. Sometimes “coin” really means “token,” as in the phrase “ICO” (which stands for “initial coin offering” even though most ICOs are in fact used to issue tokens, and are even sometimes called token offerings). It is all a matter of context, which certainly goes a long way towards making this area more confusing than it should be.

Readers have to understand things such as the reality that “Ethereum” is sometimes used to refer to the foundation, sometimes to the platform, sometimes to the token (technically Ether). Ripple is similarly used interchangeably (and inaccurately) to refer to both the company and a token that it has issued (technically XRP).

For another example of a term that clearly means different things to different people in different contexts, consider “utility token.” Sometimes a utility token means an interest that has a function in addition to potentially serving as an alternative to conventional currencies. Sometimes it means crypto that cannot be used as a currency at all (for instance, where the asset cannot be converted into other currencies or assets) and only has some other functionality. Sometimes “utility token” is used to differentiate interests that are not securities tokens, whatever those are, with the universe of cryptoassets being artificially divided into “security tokens” and “utility tokens.”

In fact, the term “security token” is used even less consistently (and regrettably, often less accurately) than “utility token.” Sometimes writers seem to assume that anything which is a “utility token” is not a “security token,” implying that the Securities Exchange Commission won’t try to regulate interests that have utility beyond serving as a virtual currency. (This is, by the way, an assumption which is not at all accurate.) Sometimes security token means a token that is intended to act like a security (as a form as quasi-equity or quasi-debt interest). Sometimes its meaning is incomprehensible to me (and I am a former securities lawyer and now professor of law who teaches in that area of the law).

But I write today of the word whose interchangable meaning appears to me to have had the worst impact on how cryptoassets and transactions involving cryptocoins and tokens are understood and regulated: “cryptocurrency.” “Cryptocurrency” is sometimes used to mean “coins” that were specifically and solely designed to replace fiat, without other functionality in mind. Sometimes it means both coins and tokens with that function, even if other functionality or utility is possible. Occasionally it is a word that is used to mean all coins and tokens excluding some groups such as those that are designated “utility tokens” (whatever that means in the particular context). All too often, however, “cryptocurrency” is used to cover the entire universe of cryptoassets. It is the “catchall” used to cover all kinds of crypto.

Why do I say this is the “worst” of the multitude of ambiguous terms used by folks writing and thinking about crypto? Let’s unpack the word. Cryptocurrency appears to be a mashup of two other words: cryptography and currency. In fact, that is doubtless where “cryptocurrency” came from. But while the first successful cryptocoin (Bitcoin) and its early progency (the altcoins) were all designed to free the world from the myriad real and percieved shortcomings of fiat currencies backed by governments and huge institutions, the modern world of crypto has moved beyond that.

Cryptotokens today can do all kinds of things. They can represent ownership of assets, or an interest in income or profits from particular operations. They can serve as a means of access (like a subway token, in a virtual setting). They can substitute for debt or equity interests, at least in part. In fact, there are an almost unlimited number of things that tokens could, at least theoretically, facilitate. Most of those are not substituting for currency. Those kinds of tokens are, however, habitually and regularly labeled “cryptocurrencies.”

The real problem is that regulators in the U.S. have picked up on that, and now seek to regulate the world of cryptocoins and tokens as virtual currencies. Because we talk about every cryptocoin or token as a cryptocurrency, regulatory agencies react monolithically too. ALL crypto is property (says the I.R.S.). ALL crypto is virtual currency and businesses that facilitate its exchange are all money transmitters (says FinCEN and many state banking authorities). ALL crypto is a commodity (says the CFTC). Almost all crypto is a an investment contract, and therefore a security (says the SEC).

Ironically, most of these agencies individually acknowledge that blockchain and crypto have the potential to transform our world. There is widespread acknowledgment by regulators that it is important not to overregulate and stifle innovation in the space. And yet, because every agency regulates crypto monolithically, the reality is that the mishmash of overlapping, duplicative, and sometimes inconsistent regulation is pushing that potential offshore.

Words have great power. And by insisting that we can accurately talk about crypto by labeling it cryptocurrency, we have (1) fostered the misimpression that all crypto has that focus; (2) all crypto is alike; and (3) the same regulations are appropriate for all kinds of crypto. While none of us individually can force (or even do much to encourage) U.S. regulators to revise their approach to cryptoasset regulation, we can individually make an effort to stop talking about cryptocurrencies (unless we are truly talking about interests whose only function is to suppliant conventional, fiat currencies). This at least has the potential to lead people to see cryptoassets differently, based on how we discuss them. Obviously we still need a word that covers the universe of coins and tokens. I generally talk about crypto, or more formally about cryptoassets. Neither of those conflate the underlying asset with currency, which I hope our regulatory agencies will eventually stop doing, too.