What is a crypto-asset?
The crypto lexicon is massive and largely incomprehensible to the untrained ear. It’s growing at a rapid rate, adding new words seemingly every week. Cryptocurrencies, digital currencies, decentralisation, tokenisation, coins, tokens, smart contracts, mining, proof-of-stake, gas… It’s difficult to keep up. Terms used in the cryptosphere are easily muddled and people tend to use words interchangeably without knowing the difference between them.
This is particularly true of crypto-assets and cryptocurrencies. In Mark Carney’s recent speech about the future of money he referred to cryptocurrencies as ‘crypto-assets’ throughout. The majority of policymakers do not consider cryptocurrencies to be true currencies and BABB is aligned with this view. We often see the terms cryptocurrencies and crypto-assets used interchangeably, confusing new users and regulators and stifling the discussion on the future of these assets.
So, what is a crypto-asset and how does it differ from a cryptocurrency?
Put simply, a cryptocurrency is just one type of crypto-asset. A crypto-asset is an umbrella term; the special sauce that powers most applications of blockchain technology. More specifically, a crypto-asset is a digital asset which utilises cryptography, peer-to-peer networking, and a public ledger to regulate the creation of new units, verify transactions, and secure the transactions without the intervention of any middleman.
Crypto-assets facilitate the decentralisation of industries, removing the middlemen through the use of cryptography and peer to peer networking and in turn reducing costs. Whether you’re making payments, file sharing or using the internet of things (IOT), you usually need a crypto-asset to make it happen.
As of April 2018 there are 1591 crypto-assets. There are four types:
- Platform tokens/cryptocommodities
- Utility tokens
- Transactional tokens
Cryptocurrencies are the most well-known type of crypto-asset. Examples include Bitcoin, Litecoin and Dash. These were created to act as a decentralised alternative to fiat currency which could be easily transacted across the world. Their value fluctuates based on the forces of demand and supply, much like traditional fiat currencies. Although it was intended as a mean of payment, Bitcoin is now considered more of a ‘digital gold’ due to its scarce supply (max supply of 21m BTC).
Platform tokens / Cryptocommodities
Platform tokens were created to act as a platform for the development of other decentralised projects. The largest platform token is Ethereum. Other examples include NEO and EOS. Ethereum’s decentralised platform provides a hardware and software base for the development of decentralised applications (dApps). The introduction of smart contracts allows new projects to be built upon the Ethereum platform and specify their own self-executing smart contracts on the blockchain. New projects can use Ethereum’s platform to issue their own ERC20 token, just as we did here at BABB!
Utility / Protocol tokens
Utility tokens (or sometimes protocol tokens) are usually ERC20 tokens built on the Ethereum platform. Examples include OmiseGO, Filecoin, Bancor and BAX. These tokens are usually created with a specific purpose in mind, bespoke to the project that issues them. They can be exchanged for specific services such as distributed storage, in-app currency or for more operational purposes. The value of these tokens are usually based on their expected use in the project for which they were intended.
These types of crypto-asset are less common. Examples include Ripple, IOTA or Stellar. Transactional tokens are created to enable fast cross-border payments while providing transparency during the process. These are usually blockchain based tokens such as Ripple, but can also involve internet of things, such as IOTA.
Why it matters
By understanding the different types of crypto-assets, the community can help regulators better understand the evolving crypto landscape. If the regulators can get to grips with the different types of crypto-assets, they can work with us to make best use of these assets in the future.
Proper supervision from informed regulatory bodies will ensure continued progress towards a more mature crypto-economy. I want to see the space become more inclusive with proper protection for participants and I feel strongly that this must begin with us.