In this large and complex cryptoassets world, Coinhouse proposes a novel classification method to identify coherent assets categories. Public or private blockchains? Tokens? Let’s focus on our methodology.
1/ Public blockchains
A fundamental role of native public blockchains’ assets is to be distributed as rewards for individuals or companies that help secure their networks through mining. Very popular examples are Bitcoin or Ethereum. They are the economical incentives that foster decentralisation and censorship resistance, giving birth to true peer-to-peer networks of value. These assets hold different characteristics and can be classified by type:
Speculation aside, the main objective of cryptocurrencies is to serve as peer-to-peer money as per the usual definition of money:
→ A unit of account
→ A store of value
→ A means of payment
→ Have a limited supply
→ Do not grant additional rights to holders
→ Are not backed by another asset
There are two main types of cryptocurrencies:
Transparent cryptocurrencies like Bitcoin have all of the traffic recorded on their blockchains. Every transaction is traceable through each incoming address. BTC (Bitcoin), LTC (Litecoin), BCH (Bitcoin Cash) are transparent cryptocurrencies.
Privacy coins are cryptocurrencies which aim to be close to digital cash, with true fungibility of assets. Features are developed in order to disable transaction traceability and protect user’s confidentiality. XMR (Monero), ZEC (Zcash), DASH (Dash) are privacy-focused cryptocurrencies.
2/ Private blockchains
Opposite of public blockchains, private blockchains are totally owned by a single entity. One can’t read or audit the blockchain unless one has the permission to do so. Their main and only advantage over a traditional database is, in the words of Vitalik Buterin, that they have “a degree of cryptographic auditability attached” to them. They are much slower and inefficient than traditional databases, and only slightly more secure.
3/ Consortium blockchains
Consortium blockchains are in between a private database and a public ledger. They are run by an organisation, whether a company or a foundation. Unlike with public blockchains where everyone can join in and be part of the network validators, these organisations have criterias for each new validators and can approve them, extend their rights or block their access. The organisation doesn’t fully own the ledger. Some nodes can be public and others stay private. Native assets or tokens can be exchanged on a consortium blockchain. We can highlight two kinds of consortium blockchains:
Consortium blockchains with native assets
Sometimes consortium blockchains choose to use a native asset. They are mostly used as a means of payment or an investment vehicle.
For instance: XRP (Ripple), XLM (Stellar Lumens)
Consortium blockchains without native assets
In other cases consortium blockchains do not see the need for a native asset. Consensus mechanisms such as Proof of Authority are deemed enough to secure the network.
For instance: Quorum, Hyperledger
4/ Development Frameworks assets
Development framework assets are native smart-contract platforms’ assets. Not only do they have a role as incentive assets within the consensus mining mechanism but they also are used as fuel to power the smart contracts. They can also play an important role through the economic model of a decentralised application running on the platform.
For example: ETH (Ethereum), XTZ (Tezos), EOS (EOS), ADA (Cardano), NEO (NEO), ETC (Ethereum Classic), QTUM (QTUM)
5/ DAG structures’ cryptocurrencies
DAG (Directed Acyclic Graph) structures’ assets fall in a different type of cryptocurrencies and are not blockchains. The asset is not used to incentivise people to secure the network, which limits the decentralisation of the system: people who secure the network are unpaid volunteers. This raises questions on how nodes agree on the correct state of the database at a given point in time. The supply is fixed since the genesis block, and features like fee-less transactions are made possible.
For example: MIOTA (IOTA), NANO (Nano), GBYTE (Byteball)
6/ Interoperability-focused blockchains’ assets
The aim of these blockchain protocols is to push for interoperability between existing and future blockchains, in order to foster a frictionless ecosystem. Allowing actions like sending ETH and receiving BTC through blockchain protocols, without the need of a third party. Blockchain interoperability could be a huge innovation, by creating a network of blockchains reliably interacting with one another, but it has yet to work in production environments.
For example: ATOM (Cosmos), Dots (Polkadot), ICX (Icon), WAN (Wanchain), AION (Aion)
Tokens are cryptographic assets that belong to a specific platform or project built upon a smart-contract platform. They do not have a blockchain of their own, and can be built on either Public, Private or Consortium blockchains. As of today, most of these assets are ERC-20 tokens built on Ethereum even though they can be built on another blockchain or through another standard, like ERC-721 non-fungible tokens. The following is our proposition to categorise tokens
DApp utility tokens
DApp (Decentralised Applications) tokens are used as units of accounting and measurement within the DApp they correspond to. In general, the core features of a given DApp require the usage of the corresponding token. They are not useful outside of their own system.
For example: REP (Augur), MANA (Decentraland), ZRX (0x Protocol), DTH (Dether)
Ecosystem tokens are in the service of a smart-contract platform’s DApps and provide a way to use a service, whether be it tools for global decentralised organisations, conflict resolution systems, crypto-backed self-loans, and much more. Most of them are part of the Ethereum blockchain for now.
For example: ANT (Aragon), PNK (Kleros), MKR (Maker)
Asset backed tokens
Asset backed tokens have their value backed by a specific asset. Much has been written about Security tokens, they fall is this category as they are backed by a tangible asset such as a company’s share. Asset backed tokens can also be IOU contracts in the form of a token.
For example: DGX (Digix DAO): 1 DGX = 1 gram of gold
Stablecoins are cryptocurrencies whose value is pegged to a fiat currency’s value. These assets are created on public blockchains and use different mechanisms to hold their value.
Some are fiat backed like USDT (Tether) or TUSD (True USD).
Others are Crypto backed like DAI (DAI) or Smart Coins (Bitshares).
Yet others are algorithmically regulated like BASE (Basis).
Non-fungible tokens are tokens that each have unique properties and characteristics, making each of them unique, with a different valuation.
For example: LAND (Decentraland), Cryptokitties