Are Crypto Assets Commodities or a Different Asset Class?

鉁嶏笍 This chat is a continuation of What Are the Main Asset Classes One Can Invest in?

The original chat showcased the chatbot’s capacity to analyze a list of financial asset classes and provide further insight, which I used to create a Canva infographic. The analysis of the classification of asset classes led me to pose the question of how crypto assets should be classified, a major topic of debate after the U.S. Securities and Exchange Commission (SEC) presented charges against Coinbase. The SEC claimed that some of the crypto assets traded on their platform were securities, not commodities as declared by Coinbase. For additional context, find below the June 6th, 2023 press release by the SEC and a subsequent interview where Coinbase CEO Brian Armstrong explains their position:

Press Release: SEC Charges Coinbase for Operating as an Unregistered Securities Exchange, Broker, and Clearing Agency

Video interview posted on YouTube by The Wall Street Journal: Coinbase CEO Brian Armstrong discusses SEC’s lawsuit and the classification of crypto assets as commodities

Considering the complexity of the topic, an initial question was posed to several chatbots to evaluate their performance and select which one to use for follow up questions: are crypto assets considered commodities or a different asset class? Although most of them provided insightful and mostly accurate information, I selected Bard for continuing the chat based on the quality of the first response.

The offline version of ChatGPT with GPT-3.5 has an evident limitation given by the limited knowledge base, so it wasn’t the most complete answer. Bing Chat was prompted with GPT-4, combined with web search capabilities, resulting in a longer response. However, based on my recent experience with the tool, it’s not the best choice for analyzing controversial topics and expecting transparency regarding its limitations. A major weak point of Bing Chat’s answer is that the main reference provided (this Medium blog) is more than 5 years old, so the chatbot provided some crypto asset examples that are not as relevant today (September 2023). HuggingChat is also a good option for trying out prompts, as it uses Meta Llama 2, the main open-source alternative to OpenAI’s and Google’s proprietary LLM’s. The answer by HuggingChat was also insightful and complementary to the rest.

For this Talking to Chatbots page, I have edited Bard’s answer with links to Investopedia and CoinMarketCap. I also selected all examples of crypto assets so the categorizations as cryptocurrency, utility token, or security token are as unambiguous as possible. You can find the responses from the other chatbots in the links below:

Bing Chat

HuggingChat

ChatGPT

馃槑 Are crypto assets considered commodities or a different asset class?


馃 The classification of crypto assets as commodities or a different asset class is still being debated by regulators and lawmakers around the world.

In the United States, the Commodity Futures Trading Commission (CFTC) has defined cryptocurrencies as commodities, while the Securities and Exchange Commission (SEC) has not yet taken a definitive position. The CFTC’s definition is based on the fact that cryptocurrencies are fungible, scarce, and transferable, and their prices are determined by supply and demand.

Some argue that cryptocurrencies should be classified as securities, rather than commodities. Securities are financial instruments that represent ownership in a company or other entity. They are typically issued by a company to raise capital, and they can be bought and sold on stock exchanges.

Proponents of classifying cryptocurrencies as securities argue that they have many of the same characteristics as securities. For example, they are often issued by a central authority, and they can be used to raise capital. They also argue that cryptocurrencies are often marketed to investors with promises of high returns, which is similar to how securities are marketed.

However, there are also arguments against classifying cryptocurrencies as securities. For example, cryptocurrencies are not typically issued by a central authority, and they do not have the same level of regulation as securities. Additionally, cryptocurrencies are often used as a medium of exchange, rather than as an investment.

Ultimately, the classification of crypto assets will likely depend on the specific characteristics of each asset. Some cryptocurrencies may be classified as commodities, while others may be classified as securities. It is also possible that a new asset class will be created specifically for cryptocurrencies.

Here are some of the factors that regulators and lawmakers are considering when classifying crypto assets:

  • Whether the asset is fungible, meaning that each unit is interchangeable with another unit of the same asset.
  • Whether the asset is scarce, meaning that there is a limited supply of the asset.
  • Whether the asset is transferable, meaning that it can be easily bought and sold.
  • Whether the asset’s price is determined by supply and demand.
  • Whether the asset is used as a medium of exchange or as an investment.
  • Whether the asset is issued by a central authority.
  • Whether the asset is regulated by a government or financial institution.

The classification of crypto assets is a complex issue, and there is no easy answer. It is likely that the classification of crypto assets will continue to be debated for many years to come.

馃槑 Is Polygon (MATIC) better defined as a utility token or a cryptocurrency?

馃 Polygon can be defined as both a utility token and a cryptocurrency.

Utility token: A utility token is a type of cryptocurrency that is designed to be used on a specific platform or network. Utility tokens are often used to pay for goods and services, or to access features and functionality. Polygon’s utility token, MATIC, can be used to pay for transaction fees on the Polygon network, to participate in network governance, and to stake to earn rewards.

Cryptocurrency: A cryptocurrency is a digital or virtual currency that uses cryptography for security. Cryptocurrencies are decentralized, meaning they are not subject to government or financial institution control. Polygon’s MATIC token is a cryptocurrency that can be traded on exchanges and used to make payments.

Therefore, Polygon can be defined as both a utility token and a cryptocurrency. It is a cryptocurrency that can be traded and used to make payments, and it is also a utility token that is used on the Polygon network to pay for transaction fees, participate in network governance, and stake to earn rewards.

However, it is important to note that the term “utility token” is often used to refer to tokens that have a specific use case on a particular platform or network, while the term “cryptocurrency” is often used to refer to tokens that are primarily used for trading and payments. In this sense, Polygon is more accurately defined as a utility token, as its primary purpose is to be used on the Polygon network.

However, the distinction between utility tokens and cryptocurrencies is not always clear-cut. Many utility tokens can also be traded on exchanges and used to make payments. Ultimately, the classification of a token as a utility token or a cryptocurrency depends on its primary use case.

Sources (info): [APN News]

馃槑 Is Ethereum (ETH) better defined as a utility token or a cryptocurrency?

馃 Ethereum is better defined as a cryptocurrency.

A utility token is a type of cryptocurrency that is designed to be used on a specific platform or network. Utility tokens are often used to pay for goods and services, or to access features and functionality. Ethereum’s native cryptocurrency, ETH, can be used to pay for transaction fees on the Ethereum network, to deploy and execute smart contracts, and to purchase goods and services from merchants who accept ETH.

However, ETH is also a cryptocurrency that can be traded on exchanges and used to make payments to anyone in the world. In fact, ETH is the second-largest cryptocurrency by market capitalization, after Bitcoin.

Therefore, Ethereum is best defined as a cryptocurrency. It is a digital asset that can be used to pay for goods and services, to access features and functionality on the Ethereum network, and to store and transfer value.

It is important to note that the distinction between utility tokens and cryptocurrencies is not always clear-cut. Some utility tokens can also be traded on exchanges and used to make payments. However, Ethereum is a cryptocurrency in the truest sense of the word. It is a digital asset that is designed to be used as a medium of exchange and a store of value.

馃槑 We can say most utility tokens can also be considered cryptocurrencies, but some cryptocurrencies are not utility tokens. Assess the accuracy of the previous statement and the following list of examples I’ve selected:

馃 Your statement is generally accurate. Most utility tokens can also be considered cryptocurrencies, but some cryptocurrencies are not utility tokens.

Popular cryptocurrencies which are not utility tokens:

  • Bitcoin
  • Litecoin
  • Bitcoin Cash
  • Dogecoin
  • Theter USDT (stablecoin)

These cryptocurrencies are primarily used for trading and payments. They do not have a specific use case on a particular platform or network.

Popular utility tokens which might be considered cryptocurrencies , but are mostly used as utility tokens:

  • Solana
  • BNB
  • Uniswap
  • Polygon (MATIC)

These tokens have a specific use case on a particular platform or network. For example, Solana can be used to pay for transaction fees on the Solana network, BNB can be used to pay for transaction fees on the Binance Smart Chain, Uniswap can be used to trade tokens on the Uniswap decentralized exchange, and Polygon can be used to pay for transaction fees on the Polygon network.

However, these tokens can also be traded on exchanges and used to make payments. Therefore, they could also be considered cryptocurrencies.

One way to think about the difference between utility tokens and cryptocurrencies is that utility tokens are primarily designed to be used on a specific platform or network, while cryptocurrencies are primarily designed to be used as a medium of exchange and a store of value.

However, the distinction between utility tokens and cryptocurrencies is not always clear-cut. Some utility tokens can also be used as a medium of exchange and a store of value, and some cryptocurrencies can also be used to access features and functionality on a particular platform or network.

Ultimately, the classification of a token as a utility token or a cryptocurrency depends on its primary use case.

馃槑 Are all popular stablecoins such as USDT, USDC and DAI considered only cryptocurrencies and not utility tokens?

馃 Whether or not all popular stablecoins such as USDT, USDC, and DAI are considered only cryptocurrencies and not utility tokens is a matter of definition.

Some people define stablecoins as a type of utility token, because they are designed to have a stable value and can be used to pay for goods and services. Others define stablecoins as a type of cryptocurrency, because they are decentralized and can be traded on exchanges.

In my opinion, stablecoins can be considered both cryptocurrencies and utility tokens. They are cryptocurrencies because they are decentralized and can be traded on exchanges. They are utility tokens because they are designed to have a stable value and can be used to pay for goods and services.

Here is a breakdown of the three stablecoins you mentioned:

  • USDT is a stablecoin that is pegged to the US dollar. It is issued by Tether Limited, a company based in Hong Kong. USDT is the most popular stablecoin by market capitalization.
  • USDC is a stablecoin that is also pegged to the US dollar. It is issued by a consortium of companies that includes Coinbase and Circle. USDC is the second most popular stablecoin by market capitalization.
  • DAI is a decentralized stablecoin that is pegged to the US dollar. It is issued by MakerDAO, a decentralized autonomous organization (DAO). DAI is backed by a basket of cryptocurrencies, including ETH.

All three of these stablecoins can be used to pay for goods and services, and they can also be traded on exchanges. Therefore, they can be considered both cryptocurrencies and utility tokens.

Ultimately, the classification of a token as a cryptocurrency or a utility token is a matter of semantics. What matters most is that users understand the purpose of the token and how it can be used.

馃槑 Evaluate the following list of crypto asset types, their definitions and the examples provided. Check for any possible errors, suggest any possible additions to the list of crypto asset types, and improve the writing if possible:

Text generated by Bing Chat (included as a prompt in the Bard chat)

馃 Your evaluation of the following list of crypto asset types, their definitions, and the examples provided is comprehensive and accurate. I only have a few minor suggestions: [full chat].

馃槑 Can you rewrite the list after applying your suggestions?

馃 Crypto asset types:

  • Cryptocurrencies: These are crypto assets that function as a medium of exchange and store of value. They use a decentralized network of computers to validate transactions and maintain a shared ledger. Cryptocurrencies are often designed to have a limited supply and use cryptographic algorithms to prevent double-spending and counterfeiting. Examples of cryptocurrencies are Bitcoin, Litecoin, Bitcoin Cash, and Dogecoin.
  • Utility tokens: These are crypto assets that provide access to products or services on a specific platform or network. Utility tokens can be used to pay for fees, access features, or participate in the network governance. Most utility tokens can also be considered cryptocurrencies. Examples of utility tokens are Ethereum, BNB, Solana, Polygon, and Uniswap.
  • Security tokens: These are crypto assets that represent a claim on an underlying asset or a future cash flow. They are subject to securities laws and regulations and often require compliance with KYC and AML rules. Security tokens can be used to tokenize traditional assets such as stocks, bonds, real estate, or art, or to create new forms of financial instruments such as tokenized funds, derivatives, or revenue-sharing agreements. Examples of security tokens are Polymath, tZERO, Harbor, and Securitize.
  • Stablecoins: A stablecoin is a type of cryptocurrency that is designed to have a relatively stable price. Stablecoins aim to address the high volatility of popular cryptocurrencies like Bitcoin by pegging their value to another currency, commodity, or financial instrument. They can be used as an alternative to traditional cryptocurrencies for common transactions due to their relatively stable value. Examples of stablecoins are USDT, USDC, and DAI.
  • Non-fungible tokens (NFTs): NFTs are crypto assets that are unique and cannot be replaced by another identical asset. They are often used to represent ownership of digital or physical assets, such as artwork, music, or collectibles. Examples of NFTs include CryptoKitties, Bored Ape Yacht Club, and Axie Infinity.

鉁嶏笍 Below are the CoinMarketCap widgets for the major 6 tokens in the list of 13 that the SEC has claimed to be securities. These are all 6 tokens with a market cap larger than USD 1 billion as of September 27th, 2023:

ADA – Sep 2023 market cap: $8.66 B
SOL – Sep 2023 market cap: $7.94 B
MATIC – Sep 2023 market cap: $4.78 B
FIL – Sep 2023 market cap: $1.45 B
ICP – Sep 2023 market cap: $1.34 B
NEAR – Sep 2023 market cap: $1.03 B

Source: coinmarketcap.com


馃彟 ThemesFinance and Wealth, Blockchain

馃 Chatbots: Bard (first chat, second chat)

鈿欙笍 Prompt engineering: Web Research, Controversial Questions

馃敆 Related links: [X.com post] [Related TtCB page] [ChatGPT] [Bing Chat] [HugingChat]

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