A Digital Asset Classification Framework

It should be a simple question: “What’s going on in crypto?” Try to come up with some sort of layman-level answer, however, and it quickly becomes clear that there is far too much terminology in the digital asset space, and that most of it follows no real rhyme or reason. The problem with this is that it causes general confusion when it comes to reporting, analysis, and portfolio management — and acts as a barrier for new enthusiasts to understand the space.

Right now, there is no generally accepted standard for classification of different digital assets. Attempts have been made, but given the rapid pace of technological and regulatory change with respect to this new class of asset class, nothing has stuck.

The goal of this post is to establish a framework for classifying digital asset (a term encompassing every asset class within the cryptocurrency space). It will define specific asset classes at a detailed level, allowing individuals to compare and gain a better understanding of the entire space.

Digital Asset Categorization Framework

The universe of digital assets can be split into the hierarchy below (credit to Pavel Pankratov for a similar hierarchy):

As you can see from the hierarchy, digital assets can be split into four broad groups:

1. Cryptocurrencies (Digital Currencies)
2. Blockchain infrastructure
3. Services
4. Utility platforms

Within the four groups, various categories exist. For instance Cryptocurrencies can be classified as Store of Value, Settlement, Stable, Private and Fiat. Beyond the scope of this post, many of these categories can be further split into sub-categories.

Digital Asset Legal Classification

Digital assets have different regulations, based on jurisdiction. The table below shows how the United States views legal classification, as it pertains to digital assets.

The most pressing issue right now, and more pressing for digital assets than ever before, is being able to reliably predict whether or not a particular digital asset will be classified as a security; each legal classification has its own specific set of legal requirements that can dramatically change the required structure of an organization.

Individuals developing a digital asset today are taking extra precautions to ensure the intended purpose of their project fits within a legal framework. They should also take the time to classify their project within a specific digital asset class so analysts and investors can better research group, category, and sub-category specific trends, competitors and more.

There’s many different schools of thought on classifying digital assets, but the above framework provides the beginning of a coherent system. After all, it would be much easier to answer questions about the crypto space if we could phrase them properly.

A strong understanding within the user-base is of paramount importance to the digital asset space, since the question “What’s going on in crypto?” may never be a simple enough question to receive a simple answer. But the question, “What’s the latest 5-day trend for Store of Value Cryptocurrencies?” absolutely could.

Thanks for reading.

DC