Alex Tapscott’s Taxonomy of Cryptoassets (From Consensus 2018)

At the recent Consensus 2018 conference in New York City, Alex Tapscott, who with his father Don Tapscott founded the Blockchain Research Institute last year and is also the co-writer of the book "Blockchain Revolution", presented his taxonomy of cryptoassets. According to Alex and Don Tapscott, we should not consider all cryptoassets as being the same and that in fact they can be divided into seven different categories:

Cryptocurrencies

This is the one that everyone knows well, and the best example is Bitcoin (BTC). It was a designed as "cash for the internet"; you could use it to move value peer-to-peer in a trust-less manner. Other examples of cryptocurrencies include Bitcoin Cash (BCH), Litecoin (LTC), Monero (XMR), Dash (DASH), and Zcash (ZEC). Some of these, like the last three, are focused on privacy.

Platforms

These are essentially blockchain-based operating systems, and the best-known example is Ethereum (ETH). Alex points out that it is kind of ridiculous when people in the media say things like "Ethereum is the new Bitcoin" since they do very different things: Bitcoin was designed as a secure medium of exchange for the internet , whilst Ethereum is a general-purpose platform that lets you build decentralized applications (DApps) and smart contracts. There are currently over 1500 DApps that run on Ethereum.

Ethereum has also become the "proto investment bank" for the entire crypto industry. In 2017, there was around $6 billion of ICO activity happened, and around 50% of that occurred on the Ethereum network using ERC-20 tokens.

You can think of the Ethereum network as a city and the applications that run on it as cars that drive around the city. The ether token is the "gas" that allows these cars to run. Therefore, as more applications get built for Ethereum, the demand for ether will go up. 

However, Ethereum is not the only blockchain platform. Since it came out, dozens of other platforms (also sometimes confusingly referred to as "protocols") have emerged. Examples include AION, NEM, ICON, and Cosmos. These 2nd or 3rd generation blockchain platforms usually aim to achieve most/all of the following goals:

  • Interoperable.
  • Scalable.
  • Smart Contract Capable.
  • Customizable.
  • Multi asset.
  • Multi industry.
  • Public (but with private functionality).

Currently, around a third of the value of the crypto market falls into the platforms category.

Utility Tokens

These are "native blockchain assets that operate within an application system." The reason for calling these blockchains "utility tokens" is that their tokens have "utility" by virtue of usually being the only accepted form of payment for the service provided by the blockchain. Examples include:

  •  Golem (GNT), which is a market place for computing power, or in the words of the Golem team, the "AirBnB of computing";
  • Augur (REP), which is a prediction market, where you can bet on the outcome of future events; and
  • SiaCoin (SC), which provides decentralized cloud-based data storage (think of it as a decentralized Dropbox) by connecting those individuals with surplus hard drive space with those individuals that need data storage space, and the only way to for this data storage service is using SC tokens;

Security Tokens

According to Alex, quite a few of the "utility tokens" launched last year were in fact security tokens since there was no legitimate use for token. 

In the world of finance, a "security" is a tradable financial asset. In the United States, a security is a tradable financial asset of any kind. There are three types of securities: debt securities (banknotes, bonds); equity securities (common stocks); and derivatives (forwards, futures, options, and swaps).

There are six types of security tokens: debenture tokens; smart swap contracts; option tokens; equity tokens; bond tokens; and smart futures contracts.

This category will potentially will become the most important/valuable in the crypto space since the equities and derivatives markets are worth hundreds of trillion dollars, and even if only a small portion of those markets was put on the blockchain, we are easily talking about trillions of dollars in value.

Natural Asset Tokens

These are tokens that are backed by physical assets in the real world. These assets can come from either "established markets" (examples include gold, oil, natural gas, fuel oil, and base metals) or "frontier markets" (examples are carbon, water, and air). 

One very interesting example is CarbonX, which has the laudable mission of fighting climate change using blockchain technology. This is essentially a loyalty reward program where consumers are rewarded for making environmentaly-friendly choices when purchasing products/services.

According to Fast Company, here is how it works: "CarbonX buys carbon offsets under a United Nations-backed scheme called REDD+. This certifies greenhouse gas reductions from forestry and ecosystem remediation projects around the world. CarbonX converts those credits into a cryptocurrency, in the form of a token called CxT. Then it sells on these tokens to retailers and manufacturers, who use them to incentivize consumers to make more sustainable choices."

Some other examples of natural asset tokens are Digix (gold), Everledger (diamonds), and Sandcoin (sand).

Crypto-Collectibles

These are unique (i.e. not fungible) digital assets. As with natural asset tokens, they track provenance, but are not usually linked to something with real value. Perhaps, the best example of today's crypto-collectibles is CryptoKitties. As for tomorrow's crypto-collectibles, one good example is assets in virtual worlds. 

Crypto-Fiat Currencies and Stablecoins

There are two types of price-stable crypto assets. Crypto-fiat currencies are government-issued currencies on the blockchain. The other way to achieve price stability is via stablecoins, which try to keep the price within a certain band either by pegging to an asset in the real world like gold or dollars -- examples are Tether (USDT) and Circle's USD coin (USDC), or through a dynamic supply system, e.g. Basis.

The first and best example of a crypto-fiat currency is Venezuela's Petro (PTR), which was launched in February 2018 as a way to circumvent U.S. government economic sanctions.

 

Featured Image Credit: "binary damage code" by "Markus Spiske" via Flickr; licensed under "CC0 1.0"

U.S. SEC Needs More Time to Consider VanEck Bitcoin ETF Proposal, Invites Comments

The U.S. Securities and Exchange Commission (SEC) announced on Monday (May 20) that it needed more time to consider the VanEck–SolidX Bitcoin ETF proposal. This delay also gives interested parties more time to comment on the proposal and address the SEC's main concerns. 

On 30 January 2019, Cboe BZX Exchange ("BZX") filed with the SEC a proposed rule change to list/trade shares of "SolidX Bitcoin Shares", which would be issued by the VanEck SolidX Bitcoin Trust. This proposed rule change was published in the Federal Register on 20 February 2019. It then had 45 days to approve, disapprove, or ask for a delay.

(Note, however, that BZX had filed its original proposal back in June 2018; the SEC delayed a decision on this proposal several times, and February 27 was the final deadline for the SEC to make a decision. However, due to the U.S. government shutdown that occurred in December 2018 and ended in January 2019, the SEC was partially out of action during this period. By the time that the SEC fully operational again, there was only a few weeks left till the final deadline. So, to give this Bitcoin ETF proposal the best chance of success, on 22 January 2019, BZX withdrew its original proposal, and re-applied (in order to reset the clock) on 30 January 2019.)

Anyway, on 29 March 2019, the SEC released a notice to say that it had selected 21 May 2019 as the date by which it should approve, disapprove, or ask for a further delay to consider the grounds for disapproving the Bitcoin ETF proposal. Why 21 May 2019? Because 90 days is the maximum amount of time it could ask for, and 21 May 2019 is 90 days from 20 February 2019, which was the date that the proposal got published in the Federal Register.  

Well, yesterday (i.e. just one day before the expiry of the 90-day deadline), the SEC decided to delay making a decision, and this time it had to provide "notice of the grounds for disapproval under consideration" (i.e. explain why it thinks that it might deny the proposal).

Here are a few of the SEC's concerns, and it is inviting the ETF's sponsor, i.e. BZX, and other interested parties to provide written comments (in either electronic or paper form):

  • Has BZX "entered into a surveillance-sharing agreement with a regulated market of significant size related to bitcoin?"
  • What is the relationship between the Bitcoin futures market and the Bitcoin spot market?
  • The proposed Bitcoin ETF uses "a non-public, proprietary index to value holdings based on OTC activity", but is this really "an appropriate means to calculate the NAV of an exchange-traded product"?
  • BZX has said in its proposal that it "has entered into a comprehensive surveillance sharing agreement with the Gemini Exchange and is working to establish similar agreements with other bitcoin venues." But is the Gemini digital asset exchange "a regulated market of significant size"?

Any arguments regarding whether the proposal should be approved or disapproved need to be submitted within 21 days of publication in the Federal Register of yesterday's order (Release No. 34-85896; File No. SR-CboeBZX-2019-004), and anyone who wants to "file a rebuttal to any other person’s submission" must do so no later than within 35 days of the date of publication in the Federal Register.

The following tweets were sent out on May 19, i.e. the day before the SEC made this latest announcement, by Crypto Twitter's favorite U.S. attorney, Jake Chervinsky:

According to Chervinsky, "VanEck's new deadline is August 19," and the "SEC can & likely will delay one more time for a final deadline of October 18."

This is how Gabor Gurbacs, Director of Digital Assets Strategy at VanEck/MVIS, expressed his personal thoughts on the SEC's ultra cautious attitude towards Bitcoin ETFs:

The SEC choosing to delay making a decision on the VanEck Bitcoin ETF proposal did not come as a surprise to the crypto markets, which reacted very calmly (Bitcoin's price only went down slightly), and in fact, at press time (11:00 UTC on May 21), according to data from CryptoCompare, Bitcoin is trading at $7,945, up 0.33% in the past 24-hour period:

BTC - 24 Hour CC Chart - 21 May 2019.png