Blockchain Digital Asset Classification: Types Of Cryptocurrencies?

The Classification of Blockchain

For many years, it was thought that the earth was made of earth, water, fire, and air. However, it was only in 1750 that scientists realized fire was not an element but the result of a process. In 1869, the first periodic table was unleashed. It showed that chemical elements could exist, even when they were not present on earth or been discovered. This classification led to may later discoveries, which continue to date.

The digital assets are following this same route. For those on the outside looking in, everything about digital assets appears magical. This confusion extends to regulators, who are not sure how to handle digital assets. With some classification in the digital assets world, it can help to eliminate some of the confusion.

The Preconditions Of A Digital Asset

A digital asset is any asset that is in binary form and comes with a right to use

These assets are scarce, which means that there can only a few defined groups of owners of the assets.

Tokens are accounting units, which represent the balance the owner holds in a certain asset.

Principles Of Classification

In any digital accounting process, there are five processes. These processes can be placed in three categories of decentralized, centralized, or impossible. These five processes are:

• Custody
• Governance
• Transaction processing
• Audit
• Issuance and distribution

The different combinations of these processes lead to different types of assets, which leads to the distributed periodic table for blockchain.

Examples Of Combinations Of These Five Processes

Cryptocurrencies

This is a network, which performs the initial issuance and distribution of a currency while also processing transactions, in a decentralized manner. The transaction processing is usually achieved via a secure and verifiable algorithm.

The secure algorithm, which each participant can run independently, manages all the five processes in this network. The key to cryptocurrency is how decentralized it is and the coordination between the various participants.

Central Bank Currency

This is a system of money where all the five processes are run by a central authority. In this system, the digital currency is pegged to the national currency on a 1:1 ratio.

Digital Currency

In this system, a decentralized user network does the validation of transactions and makes updates. Besides that, the issuance and initial distribution are done from a central point.

Commodity-Backed Token

Commodities are items produced to fulfill needs and wants. Commodity-backed tokens represent ownership rights in a particular commodity. The tokens are usually managed in a centralized system. One good example is the US dollar before 1971. Warehouse receipts or gold usually backed the dollars. In both instances, processing and auditing took place via a centralized platform.

All New World Of Business

We are the caps of a major revolution in finance. We are likely to see new models of business and the new applications of tokenization. These models are likely to develop as technology continues to improve. In the process, it will lead to major social and economic shifts. When this happens, it would be better for you to be prepared with as much knowledge of it as possible.