Types of crypto assets: classifications of experts
Today there are more than a thousand of cryptocurrencies in the world. It is a great number, so no wonder that people try to classify digital assets. Not only traders and investors but also regulators, lawyers, marketers. Currently, there are several classification systems of crypto assets, each of which is popular in corresponding communities.
1. “Bipolar” system
The very first classification of virtual currencies was the division into Bitcoin and altcoins. Such interpretation of the cryptocurrency world – “Bitcoin and other coins” – is not relevant today. Other top-class coins appeared with their own infrastructure and application areas. However, the market of digital assets maintains one peculiarity: strong Bitcoin price fluctuations affect other participants. Therefore, one can still meet such classification when processes in the market are discussed.
2. Classification by market sectors
Classification belongs to Thomas Lee from Fundstrat Global Advisors. Assets are divided by the way they are traded and it resembles the structure of market sectors. Lee distinguishes 5 groups of crypto assets:
- private tokens;
- stable cryptocurrencies (stable coins).
Most often traders use this classification. Assets of every group are traded in a similar way, so single trading models can be built for them.
3. Classification by obligation type
Valentin Kisly, a cryptocurrency lawyer, offers to classify crypto assets from the legal standpoint: “which type of relations defines the ownership”.
Embedded tokens. They are part of the core blockchain and used inside the chain. They have monetary value; they can be purchased or sold on an exchange and they are not backed by assets or obligations. Examples: Bitcoin, Ripple, Ethereum.
Tokens backed by obligations. The issuer specifies an underlying asset tied to them. The role of such an asset can be played by a share in decentralized autonomous organizations (security tokens: Digix, TaaS); the right of the owner to a tangible asset that backs a digital token (certificate tokens: Royal Mint Gold); a loan granted to the issuer (credit tokens: Steem Dollar).
Such a classification is convenient for people that view crypto assets in the legal environment: lawyers and regulating bodies. However, in most countries, cryptocurrencies have not been defined from the legal standpoint, which is why the classification is conventional.
4. Cluster classification from the standpoint of investors
Users that invest in crypto assets have their own classification. It was offered by Jake Ryan, a cryptocurrency fund manager, entrepreneur, and angel investor.
Ryan criticizes the classification by market sectors: in his opinion, crypto commodities, platforms, and stable coins are completely different asset classes compared to private tokens and exchanges. His own classification offers eight categories.
- Core/reserve: used to buy other crypto assets (Bitcoin, Ether);
- Cryptocurrencies: digital payment means (Bitcoin Cash, Monero, Dash);
- Platforms: resources that realize smart contracts (EOS, NEO, Cardano, IOTA).
- Utility tokens: fulfil specific functions on their platforms. They differ from the last group by the fact that they depend on the chosen blockchain and do not provide low-level access to it (BAT, TRON);
- Security tokens: tied to external assets (for example, a share of the company) and fall under the Securities Act (BCAP);
- Crypto commodities: allow the owner to manage a certain amount of resource, for example, disk space or computation power (FileCoin, Golem);
- Appcoins: used on one specific network and intended to provide an application service. Unlike crypto commodities, their supply is not restricted; they are distinct from platforms, because they are application-specific (Steem, Binance);
- Stable coins: a stable store of value. A very promising asset class. A bright example is Tether.
Inside of every group, cryptocurrencies have similar functions, similarly respond to the market situation, and run a similar regulatory risk.