Why Cryptocurrency Doesn’t Exist: How to Categorise 20,000 Tokens

My very humble assessment is that cryptocurrency is worth nothing, it is based on nothing, there is no underlying asset to act as an anchor of safety”?

?- Christine Lagarde, President of the European Central Bank?

In 2022, everyone knows about cryptocurrency. There’s only one problem: there’s no such thing.???

When the digital asset sector was growing, cryptocurrency was a useful umbrella term to talk about an industry that has always been more complex and multi-layered than most people realised. We need better categorisations that show how the industry is made up of a wide variety of projects, many of which are completely different and completely unlike what most people assume so-called “cryptocurrencies” to be.??

My simple way to make digital assets accessible??

Most ways of categorizing digital assets focus on the technical or legal nature of the token. I don’t think this is useful or conducive to furthering the needs of the industry.??

My framework for understanding different categories of digital assets focuses on the perspective of an investor, as well as on what these tokens really do. Here’s how we’ll break it down.??

• Store of Value?
• Blockchains?
• Financial applications??
• Other applications?
• NFTs?

Now we’ve separated into our broad categories, let’s dive in.??

Store of Value (SOV)?

For every dollar that a government prints, it makes the one in your pocket less valuable. During the coronavirus pandemic, governments printed money worth billions, which is part of the reason we are experiencing high inflation today.??

Bitcoin was created in 2009 as a direct response to the global financial crisis of the year before. In fact, Satoshi Nakamoto, the inventor of Bitcoin even referenced the government bailout of banks in the UK in the source code.??

Unlike currencies created by governments, Bitcoin is inherently deflationary. Only 21 million can ever exist and these are created slowly over time. It doesn’t need banks and anyone can mine their own Bitcoin, although you might need some serious computing power.??

The simple economics of Bitcoin and relatively slow transaction speeds have made it less like digital cash and more like digital gold. Because only a fixed number can ever exist, the price will likely go up as demand increases. This is why many investors feel that Bitcoin is a safer investment than other digital assets.??

SOV assets:?

• Bitcoin?
• PAX Gold?

Infrastructure:??

Sometimes known as smart contract digital assets, infrastructure tokens are designed for maximum programmability and a diverse range of functions. Essentially, these kinds of assets are the native tokens for different blockchains. Infrastructure assets get their value from their use in smart contract and decentralized application transactions.??

Blockchains are in a constant battle for innovation and as the latest DApps are created on different chains and public perception of these projects changes, the prices of their tokens will change accordingly. It’s kind of like looking at the share price of a company.??

Blockchain protocols?

• Ethereum?
• Solana?
• Cardano?
• Tezos,??

Interoperability blockchains:??

• Polkadot?
• Cosmos??

Second layer:?

• Polygon?
• Optimism?

Financial applications:??

Payment Cryptocurrencies?

These tokens focus on fixing the pain points of the traditional financial system, like middlemen raking in fees on transactions, as well as the amount of time it can take for transactions to clear internationally.??

That’s if you even have access to a bank account to begin with. More than 1 billion people worldwide lack access to traditional banking infrastructure and payment cryptocurrencies are a way for them to participate in global finance for the first time.??

You don’t need a bank or to pass any tests to use them, all you need is an internet connection and a smartphone, which many of the world’s unbanked already do. Payment cryptocurrencies are also popular in undemocratic countries because they can’t be blocked by governments.??

• Litecoin - Like Bitcoin but stripped down for faster and more efficient payments?
• Monero - a privacy-first payment coin that obscured all transaction data?
• Dash?
• Ripple?

Stablecoins:?

Many people who find out about the industry through the media assume that all digital assets are hugely volatile and high risk. But that’s not the case. Stablecoins are backed by an asset, usually a fiat currency such as the US dollar, and have a fixed price peg.??

Stablecoins are popular because they finally make carrying out transactions or being paid in digital assets a both practical and attractive prospect. Stablecoins can be traded internationally, settled in minutes or used in various crypto lending protocols to earn interest.??

That doesn’t mean that all Stablecoins are the same. Stablecoins that are backed by a volatile asset, such as another cryptocurrency, are inherently more risky. You only need to look at the fallout from Luna to realise that. Make sure you research what exactly makes any Stablecoin you invest in stable to begin with.??

• DAI?
• USDC?
• USDT?

Decentralized Finance (DeFi)?

Decentralized finance is digital assets for purists. If you’ve heard the old crypto saying “be your own bank”, this is what they mean. You have total control over your finances from where its stored and what you do with it, to how it earns for itself. But that also means you are solely responsible for the risks.??

TVL: https://www.statista.com/statistics/1237821/defi-market-size-value-crypto-locked-usd/?

DeFi soared into stardom by offering the services of the traditional financial world such as lending, saving and trading shorn of the costs added on by middlemen. Many investors were dazzled by incredible earning opportunities, but not all of them were ready for the risk and responsibility required from having total control over their finances.??

Some prominent tokens:??

• UNI (Uniswap)?
• DAI (MakerDAO)?
• Curve (Curve Fi)?
• Compound?

Centralized Finance (CeFi):?

Not everyone is ready for total control over their finances. Besides, many people are busy enough already without taking on all the responsibilities previously held by their bank. That’s where CeFi comes in.??

CeFi offers many of the same services as DeFi, but within a centralized exchange. In CeFi, investors don’t have complete ownership of their assets because the exchange also has access to their keys. This is part of the trade-off between security and responsibility that each user undertakes when using a centralized exchange or provider.??

Centralized tokens are like a hybrid of a membership and a company stock because they give you perks and advantages on exchanges, but also like a stock because their value tends to reflect the popularity of the exchange.??

CeFi tokens:??

• BNB (Binance)??
• FTT (FTX)??
• OKB (Huobi)?

Tokenized commodities?

Commodities are particularly ripe for tokenization and many such as oil, gas and precious metals are already widely traded in tokenized form.??

So next time someone tries to oversimplify digital assets or dish out some generalized FUD, perhaps you can ask whether their expertise extends to trading corn or cotton in the United States, or perhaps even the global oil markets? That should shut them up.??

• Commodities such as oil, gas and foodstuffs?
• Precious metals, including PAX Gold?
• Intangible assets such NFTs or patents?

Oracle tokens??

Oracle tokens have such a prophetic name because they make it possible to bring in real world information to a blockchain.??

Many applications on smart contract blockchains need this real world data for their DApps to work. Oracle tokens do this by providing decentralized data streams from gathering data from a variety of sources such as institutions, as well as individuals. The oracle token then uses the average of these answers.??

Like any other token on a smart contract blockchain, Oracle tokens are also used to pay for the cost of gathering this data through fees.??

• Chainlink?(LINK)
• API3?
• Band Protocol??

Other applications:?

It’s true that the vast majority of digital asset applications revolve purely around finance. But there’s an ever-expanding percentage of projects that only relate to finance in an auxiliary way.??

Gaming & the Metaverse?

Gaming is now a global industry with a huge and passionate user base. Until now, gamers had to deal with a fairly traditional market, where they buy games from developers and play them. Many games also require in-play micropayments.??

Now, GameFi means that game worlds can have real, functioning economies where players can earn as they play and encounter other economic incentives. Valuable objects in games can now not only have value in-game but also of their own that can be traded for profit.??

Metaverse tokens have a variety of functions, such as buying virtual land and paying for goods and services.??

Some GameFi and metaverse tokens:?

• SAND (The Sandbox)??
• MANA (Decentraland)??
• AXS (Axie Infinity)?

Data storage:?

People used to say that when you post something on the internet, it’s there forever. For anyone that had important data on the internet for a long period of time, they know this not to be true. Centralized platforms collapse, links stop working and data is deleted on the sly.??

By combining data storage and blockchain, data will be permanently accessible, decentralized and democratized. The goal of many of these platforms is to create a reliable and publicly accessible source of data storage on the internet, forever.??

Data storage tokens are used to pay for data storage, receive revenues as well as access the data storage platforms themselves.??

• Filecoin?
• Theta?
• AR Coin?

NFTs:??

NFTs exploded into public consciousness during the bull run of 2021. Normies couldn’t get their heads around images of rocks, monkeys and pixelated humans selling for millions of dollars. Crypto investors scrambled to find the next NFTs that would go through the roof.??

Despite their recent surge in popularity, NFTs have been around for a while. NFTs are not currency. Each one is unique and consequently cannot be exchanged for anything similar. In this sense, they are more like collectible cards than currency.??

NFTs come in many forms, such as real estate, music, media, gaming assets, digital art, certificates for luxury items and redeemable tokens for events and organisations.??

Why we need these categories to move forward?

I believe in digital assets because they give people power. They don’t care who you are or where you come from, but they have the potential to transform your life. I know this to be true because it happened to me.? In fact, I think digital assets will be responsible for the biggest wealth transfer in history because they finally give people mastery over both their finances and their destinies.??

But we aren’t going to get there until we make this complex and sometimes intimidating industry a bit more user friendly. That starts with using the right words. For people who came up the hard way and did a lot of Googling, this might seem superficial. But making these definitions is beneficial for the industry long term.??

First of all, by organising and categorising different assets, we can show critics that the industry is far more complex and multi-layered than they’ve ever bothered to learn. We show regulators, doubters and the unbelievers that there’s no such thing as one cryptocurrency, but actually a vast array of valuable assets, all with use cases of their own.??

The second and more important point is that it is useful for everyone to have a more structured and efficient way of engaging with digital assets. The most obvious benefit of this is for unlocking the huge potential for self-directed investment.??

With clear and concise categorisation of assets, we can leave behind the days of wealth fund manager gatekeeping and let people take control of their finance. Using the proper terms for different digital assets gives people the power to invest on their own interest and passions.?

?A programmer can direct their attention to the fundamentals of infrastructure projects and use their expertise to invest in projects they see as undervalued. Finance workers can push the boundaries by experimenting with DeFi. Musicians can release their work without middlemen, directly to their communities via NFTs.??