The 4 Types of Cryptoassets
Firstly before we tackle cryptoassets, we need to understand what an asset is. An asset is a resource that has value, like for example real estate, stocks, bonds, savings and commodities.
On the other hand cryptoassets are cryptocurrency based assets. Some people are even calling cryptocurrencies a new asset class.
Classifying Different Cryptoassets
This information is based on the book called Cryptoassets by Chris Burniske and Jack Tatar.
Chris and Jack break down the different types of cryptoassets in their book. In this article you are going to get a distilled version of the cryptoassets book’s explanation.
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The books is long, but chapter 4 specifically goes into detail on how you can classify different cryptoassets. The main problem is that people use the word ‘cryptocurrency’ interchangeably for any cryptoasset.
However there are distinct cryptoassets that are very different from each other. If we lump them all together in one basket it makes it all the more confusing.
In the book the authors talk about 3 different types of cryptoassets. However since the book was published in 2016 the cryptocurrency space has developed even further.
As a result a new type of cryptoasset has emerged. In fact the authors are also drawing attention to this form of asset in their talks lately. Although the fourth type of asset is not mentioned in the book, it is listed here.
These assets are made purely to transact with. Similarly to any fiat currency like the US dollar, the British Pound etc.
The blockchain only keeps track of how much is in each wallet and the transactions on the network. Similarly to an accounting ledger. Some blockchains are transparent so you can easily find out the wallet addresses that transacted with each other.
On the other hand, other blockchains are private and they hide this information. However even though private blockchains hide this information there are still ways to check the honesty of the network.
That is to say that there is no fraud happening where coins are created out of thin air. Or that crypto is stolen out of wallets. All blockchains keep a list of all the transactions ever made on the network.
Cryptocurrencies can act as a:
- Medium of exchange – where buyers pay merchants using crypto to buy goods and services.
- Store of value – where the currency keeps its value or goes up in value.
- Unit of account – where goods and services are valued in the crypto.
You can think of cryptocommodities as building blocks. They serve as a platform for developing other products on top of their own.
In fact they act like raw materials much like traditional commodities like oil, wheat and sugar. These commodities are also used as a basis to make other products. Like for example when wheat is used to make bread.
Hence where the name cryptocommodities comes from. Examples of cryptocommodities include Ethereum, Polkadot and Cosmos. Incidentally Bitcoin also has DeFi, but its only just started. These cryptoassets are allowing other project to build the very large DeFi ecosystem. In fact the Ethereum DeFi ecosystem has had billions worth invested in it.
These cryptoassets are made to provide digital goods or services. They sit on top of cryptocommodity platforms like for example Ethereum with its DeFi space. Each of these assets have their own tokens.
Instead of our current financial system the DeFi developers are creating a new crypto based system. As a result it has to offer the same services which are:
- Collective investments
- Asset management
- Lending and borrowing
Cryptotokens cater specifically to this space. Aave and Compound are two examples of cryptotokens.
Cryptocollectables are widely known as NFT’s by the general public. NFT stands for non-fungible tokens. They are not just jpegs you see online. Like Col mentions in his article my journey into NFTs with Angry Boars.
The blockchain developers managed to find a solution to verify digital scarcity. As a result NFTs are the blockchains ability to track original digital artwork.
So it is very much like owning the Mona Lisa. There is only one Mona Lisa in the real world. Hence thanks to blockchain we can also now verify true and original digital artwork online.
To clarify there could be other copies of an NFT floating around on the internet. However those copies will not get verified by the blockchain and they will not have value. Only the verifiable original piece will have value.
The NFT space offers either artwork or collectables, for example:
There are more popular and expensive collectible projects you may have heard of. Like for example the Board Ape Yacht Club, CryptoPunks and CryptoKitties.
For NFT artists you may have heard of Beeple and Pak. They have sold some of the most expensive NFT artworks to date.
Most NFT’s are on the Ethereum platform, but there are other NFT blockchains.
If you want to have more information about cryptoassets, the books is definitely well worth a read. In fact it is why it is listed in our top list of cryptocurrency books.
Both authors are highly knowledgeable individuals with decades of experience in financial markets. Jack is an expert in retirement planning and Chris is a trader on wall street.
In the book they mention that humans are prone to fear and greed by nature. As a result they will treat crypto like any other investment.
If you are interested in investing, this book provides the insight on what you should look out for in cryptoassets. All markets have booms and busts, great assets and not so great assets. So you will need a toolkit to know what to stay away from and when to do so.
The authors point out that valuing cryptoassets is not by any means done like traditional investments. In other words crypto is truly unique and needs a dedicated framework to evaluate it.
This is because cryptoassets do not have revenue or cash flow. So it is not as straight forward for those that want to evaluate them. Therefore you need to evaluate cryptoassets by analysing the team of developers and network effects.
You can find this information in chapter 12 and 13. Here you will find detailed framework you could use to assess cryptoassets so you can find the best ones. If you intend skimming and reading bits and pieces of the book these two chapters are a must read.
How Cryptoassets are Made
Cryptocurrencies, cryptocommodities and cryptotokens are created by developers. They need to follow specificiations and the road map created by the team working on the project.
Developers can use a whole variety of different programming languages to create cryptoassets. They select whichever one will work best for their project. That is to say one that is the most suitable for the functionality and capabilities the cryptoasset must have. Programming languages are detailed in this blockchain article.
On the other hand cryptocollectables or NFTs are another kettle of fish. Artists and designers can use any graphic and video editing software they like to compose their digital art.
However they have to make sure the file format and file size is fine for the platform they will use. In other words the platform they will use to register or ‘mint’ their artwork. Minting will place the artwork on the blockchain.
Frequently Asked Questions
What is a crypto asset?