Blockchain technology is the backbone of most cryptocurrencies and offer numerous potential use cases in both money related and non-financial industries. CBinsights, a company that build technology for corporations, recently reported that at least 42 big industries could be transformed by blockchain technology including Banking, Hedge Funds, Voting, Internet Identity and DNS, Ride sharing, Internet Advertising, as well as Music and Entertainment. Cryptocurrencies – which would technically includes crypto-assets – have also become an extremely valuable addition to virtual networks worldwide, as they enhance the user’s experience of digital media like online chat rooms, forums and social media.
Many authoritative bodies are now investigating whether some cryptocurrencies truly meet the requirement to be labelled as a financial asset, hence the origination of the name crypto-asset. The French Monetary and Financial Code characterises crypto-assets as:
“any instrument containing non-fiscal units of value in digital form that can be held or transferred for the purpose of gaining a good or service, but do not represent a claim on the issuer”.
Cryptocurrencies were initially intended, by its originator, to be instruments of trade in the digital world, but some cryptocurrencies have evolved into what closely resembles financial assets. Cryptocurrencies are gradually picking up a dependable balance in the real economy through services whereby they can be purchased or sold against fiat currencies. Some of these cryptocurrencies: can also be held as an investment vehicle; utilized as a method for trade; or with the recent creation of Initial Coin Offerings (ICOs), used as venture or financing instruments.
These recent improvements in the crypto-space have driven financial authorities worldwide to reconsider their approaches to cryptocurrencies. Financial institutions like central banks are now ready to discuss the benefits of these potential assets. This focus involves: clarifying whether certain cryptocurrencies will be categorized as currencies or assets; assessing the level of risk associated with cryptocurrencies or crypto-assets; and outlining regulatory solutions to prevent or reduce cryptocurrency or crypto-asset related risks.
according to Cryptonaire, the first cryptocurrency research and forecasting firm in the cryptocurrency and blockchain industry since 2010:
“Digital Assets are cryptocurrencies that hold value and is also approved for investments, trading and virtual possessions. With the amount of growing interest, users are turning over to cryptocurrencies for investment purposes. After bitcoin, there were many alternative coins founded to diversify the options and uses for these digital assets.”
Cryptonaire also list the following cryptocurrencies as “verified digital assets”: Bitcoin (BTC), Litecoin (LTC), Ethereum (ETH), Monero (XMR), Ripple (XRP), Dash (DASH), ZCash (ZEC), Neo (NEO), IOT (MIOTA), Qtum (QTUM), Bitcoin Cash (BCH), Stellar (XLM), Nem (XEM) and Ethereum Classic (ETC).
Bitcoin As A Crypto-Asset
Bitcoin is created within a community of miners that have access to the bitcoin open-source programming software (network). The cryptocurrency is generated using a mathematical algorithm which rewards the miners for using their computer systems to verify the transfer of the cryptocurrency from one bitcoin wallet to the next. Once created, bitcoins are put away in a digital wallet on the miner’s computer, tablet, cell phone, or cloud storage.
The now stored bitcoin can then be securely exchanged via the internet to any individual on the bitcoin network. However, providing that the bitcoin is not used for value exchange but stored in the bitcoin wallet overtime, the cryptocurrency can then be viewed as an electronically stored asset.
Theoretically, if Bitcoin is fundamentally used as a currency to pay for goods and services, it will rival fiat currency, for example, the US dollar, and subsequently impact the value of the fiat money. On the other hand, if it is mainly used as an asset, it will compete with a large number of other assets like government bonds, stocks, and commodities.
In a recent CNBC talk, Kevin O’Leavy – a Canadian businessman, author and television personality – explains his stance on bitcoin:
“The fact is, it is so unstable — volatility is both directions, it’s up and it’s down — that nobody in a substantive transaction will take that risk… so it is a long way from being a currency”
He also elaborated saying:
“However, is it an asset? Yes. It is one of the most successful assets on the planet right now because it’s a global speculation.”
In my opinion, to determine if bitcoin is a currency or an asset, we will have to seriously compare the use cases of bitcoin with the use cases of our current financial asset. We also need to give the public enough time to decide how they wish to regard this new technology.
Featured image source: Pixabay.
Edited my Marc Johnson.
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