William Mougayar, a CoinDesk columnist, is the author of “The Business Blockchain,” producer of the Token Summit and a venture investor and adviser.
We should stop trying to define or classify cryptocurrency as if it were a beast from another planet. Rather, we just need to accept it as the future of money. It is a currency, not a security, and it shouldn’t be governed by securities laws. The dollar, euro, yuan, pound are not regulated by securities authorities.
There is little value in attempting to define, box-in, segment or categorize cryptocurrency as something that needs to be continuously examined, questioned and analyzed. Instead, let’s focus on promoting cryptocurrency’s adoption because it is here to flourish and stay.
At a recent DLD 2020 panel, entitled “Virtual Currencies & the Global Financial System,” the first question from the moderator consisted of “defining cryptocurrencies.” Each of the three panelists (painfully) took a shot at suggesting their own definitions. Another panel from Davos 2020, “From Token Assets to a Token Economy,” discussed tokens as a type of cryptocurrency. In both panels, the definitions tried to depict tokens and cryptocurrency as a new type of animal.
Is there a point trying to classify the various types of cryptocurrencies, really?
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Cryptocurrency is just like any currency, except with more powerful properties. It is that degree of power that is scaring incumbents while exciting new participants.
Over the long term and in the end-state, cryptocurrency is going to be as pervasively used as today’s currency, but with a rivaling variety. Today we see cryptocurrency as the future of money, but tomorrow it will be an integral part of money.
Email was new until it wasn’t. E-commerce was a novelty until it no longer was. Filing taxes electronically or renewing licenses online was a rarity until it became routine and sometimes the only option. Online banking was innovative until it became routine. Meeting friends online was extraordinary until it became very common. Reading online news was a parallel activity to printed newspapers until it became the norm for billions of people.
Today, cryptocurrency is an anomaly whose usage and understanding are in the hands of the few. Soon enough, it will permeate our society, habits, business, government, and become second nature.
The rabbit hole of classifications
If you go down the rabbit hole of classifications, you quickly realize the resulting madness and confusion from the nomenclature jargon: stablecoins, staked currency, utility tokens, security tokens, native coins, digital rights tokens, non-fungible tokens, etc.
There are stablecoins and market-driven coins. Stablecoins, like the name implies are coins with less volatility (supported by algorithmic or asset-backing stability), whereas non-stablecoins are subject to market supply/demand price fluctuations.
Cryptocurrency can be government or non-government backed. Government-backed cryptocurrency is still a rarity, and the subject of more discussion than action. As an aside, it will end up as a centrally controlled digital currency rather than being decentralized, programmable and native to a given blockchain.
Sadly, we have invented many of these classifications to please regulators.
We also have tokens that are in essence cryptocurrencies with a purpose. Then we enter the legal sphere, where tokens get labeled a utility, or security, based on how they were initially created, who received them and their ultimate functionality. For most tokens, there is a blurred line in demarcating the distinction between exclusive utility and their security-like properties of tokens.
Somewhere between a utility and security, we also have non-fungible tokens (NFTs) that are representations of unique ownership of a digital asset that has no physical equivalent (such as a CryptoKitty or a games related artifact like a special tank or sword.)
Sadly, we have invented many of these classifications to please regulators. With tokens, regulators and governments get agitated because companies can now issue tokens as currency, whereas issuing money used to be the sole right of sovereign governments. But companies have been issuing stock for decades. A stock is another form of value that cryptographic tokens mimic when they function as a security.
Then, we enter discussions about the functionality of these tokens: can they be earned? Sold? Bought? Spent? Awarded? Are they a payment unit? Or a right to a privileged action (like voting or getting access to information). Will their value increase if you don’t use them and just store them? Are they native to a blockchain network, or grafted on top of an existing platform or singular application?
The above classifications are what we currently see, and there may be new representations we haven’t seen yet. While some of these functions are distinct from one another, many of them overlap with each other. That is why classifying cryptocurrency is not that useful, because we are still in the formation stages.
Reality check. Stop defining.
Time for a reality check. Do we still attempt to define the internet? Not anymore. But in its early days, we did…until we didn’t anymore.
Do we define money by its use cases, like something you buy groceries or pay a toll with? Or do we, rather, define money by its properties?
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Money’s key properties consist of being a unit and a store of value that is transferable, fungible, verifiable, divisible and scarce.
Cryptocurrency inherits all these properties, in addition to adding unique functions that money doesn’t have: its immutability is digital (the physical is gone), it can be fungible or non-fungible, its policy governance doesn’t need to be centralized, it has very powerful programmable capabilities with imbedded logic (if-this-then-that), and its transferability is peer-to-peer (without central intermediaries). In essence, cryptocurrency is money on steroids.
Let us start using cryptocurrency according to its most common features first, the ones that it shares with the money we know. Then we can evolve from there. Just like early websites were glorified brochures on a screen, then we evolved way beyond that monochromatic use case into e-commerce, e-business, two-way communications, social interactions and much more.
Using cryptocurrency hasn’t been easy for the average person, and that’s a valid challenge. But it is getting better.
It is time to give cryptocurrency the place it deserves. If it is to claim a position as the new money, then we need to increase its usage, starting with the easier use cases and gradually increasing the variety and complexity.
We need to bring cryptocurrencies to the fore and make them as popular as regular currency and web are.
Let us stop defining and segmenting cryptocurrency in ways that limit it. Rather, let’s start using it in ways that open up the possibilities and allow it to cement itself in our lives and businesses so it is accepted, welcomed and not feared.
Cryptocurrency is the new money and the new currency. It is time it enters the bloodstream of the mainstream.