CLASSIFYING A CRYPTOCURRENCY: SECURITY OR CURRENCY OR ASSET?

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Classifying A Cryptocurrency Security Or
Currency Or Asset?

• Cryptocurrencies are a global phenomenon known to
  almost everyone. Today, it would be extremely
  difficult to find any major bank, a renowned
  accounting firm, a popular software company, or a
  government that has not researched or published a
  paper on cryptocurrencies or blockchain. But
  beyond this popularity, there are many
  consultants, scientists, and developers who have
  limited knowledge about cryptocurrencies.

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• What only a few people are aware of is that
  cryptocurrencies are a side product of another
  invention. Satoshi Nakamoto, the unknown inventor
  of Bitcoin, did not intend to invent a
  cryptocurrency. The most important part of
  Satoshis invention was that he found a way to
  design a decentralized digital cash system. After
  seeing all the centralized attempts fail, he
  built a digital cash system without a centralized
  authority. This was like a peer-to-peer network
  for file sharing. This marked the birth of
  cryptocurrency.
• But is Cryptocurrency Classified As A Security,
  Currency, Or Asset?

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What Is a Cryptocurrency?

• A cryptocurrency is an internet-based medium of
  exchange which leverages blockchain technology to
  gain transparency, immutability, and
  decentralization. It uses cryptographical
  functions for carrying out financial
  transactions. A majority of the cryptocurrencies
  are decentralized systems based on blockchain
  technology.

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• Bitcoin was the first blockchain-based
  cryptocurrency which is still very popular and
  highly valuable. As of February 2019, there were
  approx. 17.53 million bitcoins in circulation
  with their total market value being estimated at
  around 63 billion. Some of the top
  cryptocurrencies are Ethereum, Ripple, Litecoin,
  Monero, EOS, Cardano, etc. Cryptocurrencies
  provide the ability of easily transferring funds
  between two parties involved in a transaction by
  eliminating the need for a trusted third party.

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Why May A Cryptocurrency Like Bitcoin Not Be
A Currency?

• There are two main issues associated with Bitcoin
  as a currency. One is that its value is unstable
  and the other is that its transaction processing
  is too slow. The most important feature of a
  currency is that it is a stable store of value.
  It is important for the economy of a developing
  country to attract the investment it needs.

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• The value of a currency must be stable as it is
  the key to investment because people expect a
  stream of future earnings to earn back their
  investment with a considerable amount of profit.
  If the value of a currency is unstable, it will
  be difficult for an investor to predict the value
  of his future earnings accurately. This will make
  the investment less valuable. All
  cryptocurrencies are subject to an average daily
  change of at least 2 in value. Mostly their
  value is up, but sometimes it might be down.

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• Another important feature of a currency apart
  from being a stable store of value is its ability
  to facilitate transactions. The big drawback of a
  Barter system is that it is inconvenient. It is
  necessary to find two people to exchange goods.
  Three or four-way trades are complicated. This is
  why currencies replaced barter as they are more
  convenient. Now, coming to cryptocurrencies.

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• Though blockchains protect and secure
  cryptocurrencies like Bitcoin, the transactions
  are processed very slowly. As cryptocurrencies
  have a limit on the number of transactions that
  can be done in a day, it usually takes many days
  to complete a single transaction. Due to these
  drawbacks, instead of holding cryptocurrencies to
  use them as a currency, it can be used as a
  commodity asset that people trade like gold or
  silver. The ideal uses of cryptocurrencies are to
  hide wealth, conceal transactions, and make and
  lose money by trading them.

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Can A Cryptocurrency Be Considered A Security?

• The term security is usually used to describe
  financial assets that can be traded. It can be
  any form of financial instrument, associated
  tokens, or cryptocurrencies. The Howey Test is
  done to detect securities within the blockchain
  industry. The Howey Test is a result of a legal
  battle from 1946. It is a framework that helps
  determine if a particular asset can be considered
  as an investment contract (security).

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• Considering a cryptocurrency as a digital asset
  depends on the circumstances and facts that
  surround the original investment. A digital asset
  may initially be considered and sold as a
  security as it meets the definition of an
  investment contract. It is also possible for this
  designation to change over time if it is offered
  and sold in such a way that it does not meet the
  definition. Cryptocurrencies cannot be classified
  as securities as they are decentralized. They are
  not governed by a central authority whose efforts
  are a key determining factor in the enterprise.

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Can We consider Cryptocurrencies As Assets?

• Cryptocurrencies can be considered as an asset in
  terms of the lucrative returns they give. But
  cryptocurrencies also have their own issues with
  volatility in price being one of them. Liquidity
  leads to a sudden movement in cryptocurrency
  prices. There are many facets to the concept of
  liquidity. It can be defined as the ability of an
  asset to be converted into cash on demand. An
  asset, as we know, is an economic resource that
  can be controlled or owned and provides the owner
  with financial value. Assets come with an
  in-built promise of increased future value.

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• Cryptocurrencies can be sold and converted to USD
  or any other currency, whenever you want. It is
  more liquid and tends to rise in value. Even
  then, cryptocurrencies cannot be called clear-cut
  assets such as a house or gold. The top
  cryptocurrencies are currently rising in value
  and are being adopted by an increasing number of
  people every day. But we will only know what it
  truly is when it is done growing.

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Conclusion

• Cryptocurrencies Are certainly here to stay and
  change the world. People all over the globe are
  buying cryptocurrencies to protect themselves
  from the devaluation of their national currency.
  The cryptocurrency market is growing fast and
  wild. Each day, new cryptocurrencies are
  emerging, and cryptocurrency trading is becoming
  increasingly popular with more and more people
  indulging in it.
• To stay updated with blockchain technology, check
  out the Blockchain council.

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Blockchain Council Certifications

• You can check out our certifications, and kick
  start your career in the Blockchain space today.
• Certified Blockchain Expert
• Certified Blockchain Developer
• Certified Smart Contract Developer
• Certified Solidity Developer
• Certified Ethereum Developer

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