Cryptoasset, digital gold, peer-to-peer cash, virtual currency, etc., etc.
What’s in a name? It turns out that what things are called is important, especially when people are coming to a new technology or a new way of doing something. I think the naming of new technologies is way more significant than we realize. A name, whether accidental or deliberate, becomes the basis for defining something, and the way we share (or market) new ideas. There are a number of articles from business journals (like the science of product naming) or even articles on popular websites (name your startup in 16 steps). And there are probably entire courses at management schools about the importance of identity. But what about naming an entire industry or economic sector. How does that happen?
The currency part of cryptocurrency
Digital cash, internet money, the new gold… The currency part of crypto feels somewhat familiar because we have a history of dealing with government-backed fiat currency. Even though it might be a thing that is hard for many to define, we have had so many interactions with a paper-based currency that we understand it intuitively. We understand it because we get the underlying characteristics of how a currency works:Divisibility: Currency is divisible — larger units can be divided into smaller units.Portability: Unlike an asset (like maybe a house or a barrel of oil) money can be moved relatively easily and be sent from point A to point B.Stability: For a monetary system to work, the value of its currency must be consistent over time.Scarcity: Not scare as in never-able-to-find, but scare as in not able to be printed at home on a desktop computer. Durability: This is often explained as physical durability, but as more and more traditional currency moves to electronic and digital payments, I think the actual durability of the physical money is less important. What is critical is the durability of the infrastructure underpinning the system.So the challenge here is taking what we know about traditional currencies and see how they map to cryptocurrencies. In some instances, and this varies project to project, the cryptocurrencies can function like a form of digital cash. The greatest advantage is that blockchain-backed transactions remove the need for centralized control (which alleviates concerns about censorship, manipulative policies, or added expense). While some cryptocurrencies can function as replacements for traditional currencies on a theoretical level, very real concerns still exist about scalability, stability, and security.
The asset part of cryptoasset
But not all cryptocurrencies function like currencies. Some are more like assets with underlying economics that function more closely to traditional assets like commodities, securities, or even real estate. Like currencies, traditional assets have certain defining characteristics that are useful to think about when comparing to crypto:Investability: Assets have the ability to be traded, and traders have pretty easy and open access to the markets where that exchange occurs.Regulated creation and control: This mainly relates to securities, and historically stocks and bonds are created and controlled by regulated entities such as governments or corporations. Correlation: Traditional securities are correlated to one another. When the stock market crashes, for example, ripples are felt in other economic sectors, such as the price of oil, or the value of real estate. The opposite is also true. What’s interesting about cryptoassets is that, so far, they behave independent of traditional assets and are even used as a hedge against devaluation or depreciation in some parts of the world.When comparing cryptoassets to traditional assets there is definitely some overlap in the way that crypto behaves, in terms of markets, correlations (at least to other crypto markets) and risk/reward. What really sets cryptoassets apart is that they are not controlled by a centralized government or corporate entity. How that plays out in the long-run will be really interesting. (I’ve written more about how cryptoassets are an emerging asset class here.)
So, cryptocurrency or cryptoasset?
Somedays I think it would be easier, or maybe less confusing if crypto had a different name. Admittedly, I am still undecided on whether to use cryptoasset or cryptocurrency when writing for this project. I find myself alternating between the two, sometimes within the same post, which I’m sure doesn’t help.I like cryptoasset because it does feel more inclusive and isn’t trying to force the comparison between crypto and fiat money. It works because you could be talking about the commodity-like attributes of bitcoin or the more advanced functionality of ethereum’s automated contracts and the name would still work. Multiple kinds of crypto projects can fit under the asset umbrella, which is useful considering that the crypto space is rapidly evolving and challenging the way we understand value creation and distribution.Cryptocurrency, on the other hand also has some utility, it carries a sense of immediacy and of change. And then, to add another wrinkle, there is the camp that can’t stand it when cryptocurrencies, or cryptoassets if you like, are referred to plainly as crypto. So, until the decentralized and highly-fragmented and rapidly growing sector that is defined by blockchain-backed assets comes up with an agreed upon naming convention, we’ll just keep throwing out interchangeable labels.