Cryptoassets & Classifications
During the Underscore VC Blockchain Core Summit, we had the pleasure of welcoming Anders Brownworth, Chief Evangelist at Circle and a member of Underscore’s Core Community, to talk about the future of institutional cryptoasset trading. Below are some insights after learning from this prolific thought leader.
In today’s frenzied boom of ICOs and token offerings, one of the hottest topics up for the debate is classification: legally, how should we treat cryptocurrencies? The SEC and CFTC are both vying for control, which would indicate that cryptocurrencies are securities and commodities, respectively. Of course, the reality is likely more nuanced: if cryptoassets are programmable money, perhaps the classification depends on the program.
We thought that Anders brought clarity to this classification via a breakdown into three buckets: cryptocurrencies, cryptocommodities, and cryptosecurities. Of the three, cryptocurrency is perhaps the most obvious — this is the all famous Bitcoin. As SEC chairman Jay Clayton has noted, almost all ICOs would be cryptosecurities: usually, ICOs are for “dummy tokens” which do not yet provide real functionality, sold with the promise that their functionality will be built out in the future (and thus rise in value).
However, perhaps the least discussed of Anders’ three categories were cryptocommodities. They represent the raw computational resources of a blockchain consensus itself; for example, gas (measured in compute cycles) in Ethereum or block space (measured in bytes) in Bitcoin. The price of Bitcoin block space famously skyrocketed during the late 2017 crypto bull run:
Similarly, the price of Ethereum’s gas spiked when Cryptokitties went absurdly viral (admittedly, we contributed to the craze by having teams purchase a Cryptokitty mascot in our Summit’s icebreaker!):
Cryptocommodities are not talked about much today, because of their fleeting nature. When miners produce them, they are sold immediately in return for transaction fees — but the transactions themselves instantly consume the underlying commodity. Imagine a real-time spot market for, say, rice, where the second you purchased rice you were forced to eat it! This is the way most cryptocommodities exist today — usually impossible to “stockpile,” them as is done with grain, oil, or other IRL commodities.
…That is, until recently. The first publication from Project Chicago, a new academic alliance dedicated to the study of cryptocommodities, allows for exactly this. So-called GasToken leverages a gas refund mechanism to store Ethereum gas at one time, and deploy the refund at some point in the future. Mechanisms like GasToken could provide stability to the volatile cryptocommodity markets which transaction fees create today.
As cryptocommodities slowly inch their way near center stage, it becomes more clear that the future of cryptoassets are complex and clearly not one-size-fits-all, as Anders suggests. We look forward to enabling the next generation of cryptoassets, pioneering new business models and breaking the molds of traditional assets.