Cryptoassets: Are they the Same as Cryptocurrencies?

If you are looking to invest in cryptocurrencies, it is likely that you may have heard of the term cryptoasset (crypto-asset) already. Crypto is used as the most broad reference to the industry. But, it is important to specify what type of financial instrument one is actually talking about. Hence our article.  

The two terms cryptocurrency and cryptoasset may seem identical, especially since they are often used synonymously. However, they do not convey the same meaning. To differentiate between cryptocurrencies and cryptoassets, it is important that we define them individually first.

What is a Cryptocurrency?

Cryptocurrencies like Bitcoin, Litecoin, Dash, etc. can be defined as encrypted, electronic currency systems that meet the following standards:

• They have decentralized, distributed, but interconnected ledgers.
• All units of the currency are kept on record, alongside ownership.
• No additional currency beyond the system’s initial mandate can be issued without circumstances meeting all predefined standards for such an action.
• If there are no predefined mandates regarding additional units, the limit is final.
• Ownership of every unit is protected by encryption and can thus only be claimed by people with access to the decryption keys.
• Financial transactions will be possible, along with the auto generation of transaction statements as proof of transfer.
• Attempts to use the same unit in two or more simultaneous transactions/exchanges will always fail as only one transaction can go through.

In other words, all cryptocurrencies should be decentralized and encrypted. High security, comparative privacy, and tremendous ROI potential have made them as popular as they are today.

What is a Cryptoasset?

Cryptoasset is a broad category that includes any and all cryptographical assets one may invest in. The latter part, “currency”, is removed in favor of “asset” because cryptoasset is a term that focuses on and defines the value of all cryptocurrencies exclusively as assets (investment/exchange value) and not as transactional currencies. Your total stash of cryptocurrencies would be defined as your total cryptoasset; therefore, it usually comes into play when someone has invested in more than just one type of cryptocurrency.

Aside from traditional cryptocurrencies like Bitcoin and Litecoin, which meet all the criteria mentioned earlier, tokenized cryptocurrencies are also considered to be cryptoassets. These would be the:

• Platform tokens: Ethereum, EOS, NEO, etc.
• Utility tokens: BAX, Filecoin, Bancor, etc.
• Transactional tokens: Ripple, Stellar, IOTA, etc.

Are Financial Products Bought with Cryptocurrency Also Cryptoassets?

The answer varies,as any financial product that you buy with cryptocurrencies will not be considered as a cryptoasset unless the product itself is also a cryptocurrency. For example, hedge funds will often invest in several different markets to gain maximum leverage, which includes cryptocurrencies as well. As part of a strategy, the fund manager may use a portion of their cryptoasset to buy other financial products, or funnel additional funds to boost the value of their present cryptoassets.Even though the financial products (which may include regular currencies) bought with cryptocurrency will become part of the hedge fund’s total financial asset, they will not be considered as part of their total cryptoasset. If they funnel additional money into a new cryptocurrency, however, it will become a part of their existing cryptoasset.