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International Regulators Continue to Seek Uniform Definition for Crypto-Assets by newageinv

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· @newageinv · (edited)
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International Regulators Continue to Seek Uniform Definition for Crypto-Assets
<center>![Crypto Coin pexels-photo-843700.jpeg](https://ipfs.busy.org/ipfs/QmWBX4rg6VvaWgkeiWMktEup1fmNaEXEWpExqSbq8GMRjc)
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<center>[Source](https://www.pexels.com/photo/four-assorted-cryptocurrency-coins-843700/)</center>

<div class=text-justify>The cryptocurrency asset class continues to be the most fragmented asset class given its continues decentralized nature and how it is difficult to associate them with anythings similar in the traditional financial system. They continue to have various treatments globally and even within certain countries, different authorities define them differently. We have seen how in the United States, while still not absolutely clear, the IRS deems them property while other agencies have them in the commodity category. The uniformity is an important goal to arrive at as it could lead to less adoption given the dependency of large institutions, including retailers and other potential participants, to properly acknowledge compliance with accounting and reporting aspects associated with any type of asset.<p>

In May of this year, the G20 Financial Stability Board said that the asset class does not pose a material risk to global financial stability at the moment but remain concern regarding policy issues given that grey areas exist regarding the regulation of some. They also stated that it would be key to create differences in legal frameworks of existing assets given the fast-moving state of the technology. However, they failed to close the identified potential gaps on eh frameworks and whether higher levels of coordination were needed.

Previously in 2018, the International Monetary Fund's (IMF) Statistics Department published a white paper to propose different classifications of the asset class in order to ensure that they are properly measured in macroeconomic statistics. The paper was very interesting as it clearly demonstrated how the asset class has matured to being widely accepted for economic purposes given their "digital revolution." They mentioned that these assets combine properties of currencies, commodities, and intangible assets but should should be considered nonfinancial assets. This is due to the ironic fact that they deem financial assets as being a liability to the issuer. Since most of the crypto assets are decentralized, there is no liability for the asset in any balance sheet.

They divided Crypto Asset into two large categories: (1) Bitcoin-Like Crypto Assets (BLCA) and (2) Digital Tokens. They make the distinction between the two mostly due to the Proof of Work needed to run the networks that support the BLCAs since issuers are mostly absent from those that require mining of some sort. Their definition is that BLCAs are "designed to serve as a general-purpose medium of exchange for peer-to-peer payments, with no issuer and no counterpart liability." The protocol (or code) itself is what governs the operation of the system for verification purposes among the participants.

Digital Tokens are then classified into four types depending on their "economic function:" (1) Payment tokens, (2) Utility tokens, (3) Asset tokens, and (4) Hybrid tokens. These are defined according to their name which we have grown to understand in the space. Interestingly, they clearly make the note that some of these tokens can very well be considered securities given that they can represent debt or equity claims on the issuer. So while they may not be Financial Assets, they are clearly Economic Assets because they derive economic benefits to the holder as well as having monetary value.

The issue becomes where to classify these within existing frameworks as not even the International Accounting Standards Board (IASB) has been able to provide clear guidance. However, the use of the assets continues to become a part of the statistics in the real economy which could have implications of ignoring their impact. The proposal discussed the opportunity to classify BLCAs under the subcategory of valuable and in fact calling them digital valuables because of their use as a store of value or a means of payment. They would not side with the few that consider these to be Intellectual Property or Intangibles.

However, they also signal the continued challenges to harmonize a uniform approach as these asset are more global in nature than most asset classes. Not fitting into any current categories means the potential for misinterpretation. Complex data collection and the decentralized nature of their networks pose additional challenges they state need to be considered. They have already seen how different jurisdictions have treated some assets differently given the absence of uniform securities laws globally. The more time passes, the more difficult the ability to achieve consensus will become as well!</div>

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vote details (89)
@leaky20 ·
Interesting. It's  ever easy to come up with a clear definition of something that's new, especially when the new thing appeared rapidly into the market and birthed a whole lot of variations of itself. Defining such things and creating the rules and regulations to govern them would be a nightmare. Sounds like they are making progress on that though. It probably helps that the community has already started defining these things and describing their use cases.

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@newageinv ·
I agree and it is why I am most concerned that this type of interference from regulators could impact innovation and creative development for end users.
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@partiko ·
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