Digital Assets Classification- A Critical approach

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In the era of latest technology, the hot issue which is being often faced by many investors and executives is that how their digital assets would be treated by higher regulatory authorities.

After the evolution of blockchain technology, everyone is struggling to be a part of this money generating chain. And somewhat they are also getting their target market by achieving their projected profits. With the start of this new technology, many investors and traders are approaching it by investing their capitals in it without being fearful of any loss. On the other side, governments all around the world are taking advantage of this newly born technology by imposing different tax schemes. Internationally, governments are also trying to grip with its risk and rewards. Like the US government is also intervening in it bringing it out of the shadows to make a streamline of its users.

Anar Babaev, co-founder of ICO Box in Moscow says that:

“Recognizing the extraordinary popularity of crypto-currencies among Russian users, some of the Russian regulators are lobbying a permissive rather than a prohibitive approach to the new technology.”

The world has evolved too much over the last 30 years. Technological advancements made everything significantly more mobilized and international in which everyone can put their trust to get their craving financial outcomes. If we talk about the cryptocurrency world, it breaks down the traditional and customary regulatory structures which were established by ancient systems.

There are many digital assets which are in use nowadays with overlapping characteristics globally. Here is a permissive discussion between these assets:

1. Coins

The coin is a basic commodity which has been commonly used since the beginning of civilization on this Earth. Bitcoin is now going to replace it because of its digital nature which is gaining investors trust in it. It is also increasing its creditability due to extensive use of it. As we all are well aware of the currency, which is issued by the governmental structures. It is often termed as the political framework of nations which decides economic functioning based on circulation of money, the inflation and unemployment rate. Classically, the concept of currency emerged from the commodity which is most of the time gold. But with the arrival of new technological changes, it is no longer tradition in our society. This revolution came in 1970’s when fiat money standards replaced the traditional norms in the United States and later on worldwide.

Basically, the government agencies generate the fiat money. It’s not being supported by any physical commodity instead supply and demand system in the economy decides its value overall.

Crypto World:

As a reference to the crypto world, currency issuance is a private matter of a sole existence, it does not require the intervention of governmental policies. If we talk about Bitcoin, it is the dealing of those miners who used to do mining on the Bitcoin blockchain. It gives the reciprocal advantages to the miners in shape of different rewards which are being supported by their efforts that are backed by discussion power.

A professor at MIT’s Sloan school of management remarks Bitcoin as follow:

“In a place like China, they may see an opportunity to catch up with other countries; to adopt new technology, and maybe even overtake people.”

Additionally, Bitcoin does not impact the varying monetary policies of the central banks.

Therefore, millions of people are going towards Bitcoin and using it as a head spring of trade.

The flexibility of Bitcoin can fix it into a token, securities and other types of digital assets. Many revenue services also regard it as a property for federal as well as for provincial tax motives.

Functioning of Bitcoin:

Bitcoin has no monetary authority. It functions solely by using the network of computers. It takes a very short time to generate rewards. That’s why it is evident that it will become a global reserve currency very soon.

BitCoin - Digital Assets

Since Bitcoin is the world’s largest cryptocurrency and it employs the suffix “coin,” I will define a coin as a digital asset that functions as a currency.

2. Tokens

A token is another digital asset which allows its users to get benefits from it on some specific platforms. If we analyze token’s physically, it is same as purchasing a ticket at some train station for switching between 2 destinations. Once you buy a ticket, you can only redeem it for some eatable or some entertainment purposes with few limits. Tickets would be priceless for instance. It automatically leads you towards regret.

On the other hand, tokens are considered as an amount of goods or specific services. You can keep it with you for a long time without being afraid of losing invested money. Furthermore, different companies are offering tokens in shape of tangible goods. These tangible goods can be valuable metals. However, it does not mean that tokens are only available in tangible form. You can gain tokens in a variety of services.

Type of Token:

There are basically two types of token:

Intrinsic Tokens

These tokens are not backed by any physical commodity, and they are basically created by using software where anyone can write the ownership and nominates someone else to own it.

Some of the well known intrinsic tokens are:

  • BTC on the Bitcoin blockchain
  • XRP on the Ripple network
  • NXT on the NXT platform
  • ETH on Ethereum

Asset-backed Tokens

As its names imply that these tokens support any tangible commodity or asset; furthermore, you can redeem them. The commodity can be gold which issuer must be a Goldsmith.

3. Securities:

Many members of Securities declared the tokens as the security after the consensus. Most of the traders remark this digital asset as more reliable. The SEC concluded that security trade does not depend upon its sale and offer, rather it depends upon the facts and circumstances behind it. These circumstances might be economic realities of the transaction as well.

Stephanie Avakian, co-director of the SEC’s Enforcement Division

“The innovative technology behind these virtual transactions does not exempt securities offerings and trading platforms from the regulatory framework designed to protect investors and the integrity of the markets.”

Conclusion (Digital Assets):

With the evolution of technology, there are increasing options to invest for different types of digital assets. The boundaries between these digital assets are getting smaller because of their characteristics. There are different types of regulations which hold the properties of digital assets. It’s also a significant point that investors should be aware enough to invest in it. It needs a proper governing body behind this which will comply with its emerging advancements. It will lessen the risk of unsecured habitual things which can happen to the investors. With the improvement in regulations, we can take security measure to avoid any fraud.

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