Global Efforts to Classify Cryptocurrencies

A significant cryptocurrency data aggregator known as CoinGecko and a cryptocurrency investment company known as 21Shares have teamed forces to develop a universal standard for categorizing the many different types of crypto assets.

The Global Crypto Classification Standard study was published on February 8 by CoinGecko and 21Shares. It outlines a standardized technique that can be used to classify cryptocurrency assets. The purpose of this work is to assist investors and regulators in gaining a better understanding of the particulars of each asset class in the cryptocurrency business, including the possibility for failures such as those that the sector experienced in 2022.

“In contrast to conventional financial assets, the nature of crypto assets may have a wide range of variations, both in terms of the asset itself and the protocol that underpins it,”

At the time this article was written, the website of CoinGecko listed more than 12,000 distinct cryptocurrencies, and each coin has its own set of traits and features that marked it apart from the others. The classification method used by CoinGecko and 21Shares is based on three main layers of categorization, which differentiate these hundreds of assets according to stack, market sectors, industries, and taxonomy.

The first level, known as the “crypto stack,” organizes crypto assets into categories such as centralized apps, decentralized applications, interoperable blockchains, and smart contract platforms, amongst others. The technique does not refer to the underlying token at any point in the first two tiers; rather, it exclusively discusses networks and protocols.

The second level is referred to as “market mapping by sectors and industries,” and it further divides cryptocurrencies into categories such as infrastructure, metaverse, and decentralized finance (DeFi), in addition to groups such as payment platform, lending, and developer tooling, amongst other categories. The technique makes an effort to classify the assets according to the category that is the most relevant to their use in situations when certain standards may be applied to more than one industry.

Based on the cryptocurrency taxonomy approach that was suggested by crypto analyst Chris Burniske in 2019, the third level was referred to as the “taxonomy of crypto assets.” Within this level, crypto assets were categorized according to related asset “superclasses.” The methodology developed by Burniske is based on a study written by Robert Greer in 1997 titled “What is an Asset Class Anyway?” Putting crypto assets into their respective superclasses, such as capital assets, assets that can be consumed or transformed, and assets that may be stored as value.

Dogecoin (DOGE), Bitcoin (BTC), Monero (XMR), and Zcash (ZEC) are some of the examples that may be found in the category of store of value assets (DOGE). This particular kind of crypto asset “cannot be consumed,” and it also does not provide any form of revenue. “However, it does have worth; it is a store of value asset,” is how the proposed categorization standard puts it.

The attempt by CoinGecko and 21Shares to bring about a worldwide crypto categorization standard is only one of the numerous efforts being made all around the world to classify cryptocurrencies. The Australian Department of the Treasury issued a consultation paper on “token mapping” on February 3, with the goal of developing its own taxonomy of crypto assets. Prior to this, Belgium’s Financial Services and Markets Authority was also soliciting comment on its categorization of crypto assets as securities, investment instruments, or financial instruments in July of 2022. This was done in order to make an informed decision.

According to Gonzalez, “while the categorization of digital assets is quite prevalent, many classification attempts are one-dimensional and mislead conventional investors by combining crypto assets, the investable tokens, directly with the protocols that are behind them.”

The executive also expressed optimism that the newly suggested standard would be able to appeal to retail and institutional investors, as well as governments all over the globe, as a result of 21Shares’ work with CoinGecko, a leading independent cryptocurrency statistics website.