What Is A Crypto Commodity? A Detailed Guide
With the growing popularity of crypto, many terminologies have come into use. While many of these terms are commonly used and understood, others are more ambiguous. One such contentious term is ‘Crypto commodity.’
In this article, we will provide the basic meaning of crypto commodity. In addition, we will consider some other essential interpretations of the term.
What is Crypto Commodity?
Crypto commodity is generally used to describe a tradable or fungible asset. This is usually in the form of exclusive tokens on a blockchain network. These assets typically represent real or virtual commodities, utilities, or even contracts. Specific platforms such as the Ethereum blockchain network can be considered a crypto commodity ecosystem.
This is because these platforms allow the representation of fungible assets by using unique tokens. On the Ethereum network, for instance, developers can create their tradable digital tokens. These tokens have values separate from the network’s native token – ETH. Such tokens could represent a variety of assets ranging from in-game items to real-world commodities. An example of a crypto commodity that represents real-world commodities is DGX. A DGX token symbolizes 1 gram of gold and is backed by actual gold bars.
It is noteworthy that there are other views of what crypto commodities are. For instance, some regard the blockchains used in generating tokens as crypto commodities. Others refer to resources used in creating cryptocurrencies (such as CPU power) as crypto commodities.
The term ‘crypto commodity’ is also used to refer to the regulation of crypto as commodities instead of securities.
Crypto as a Commodity: What Does It Mean?
In the past, Bitcoin and Ether have been tagged commodities by the Commodities Futures Trading Commission and the Securities and Exchange Commission. Regulators in some other countries appear to be headed in the same direction, such as in India. The designation of crypto as commodities or securities is important for several reasons.
For one, it determines how heavily authorities would regulate the crypto space. Relative to securities, commodity markets are subject to less stringent regulation. For example, securities are generally subject to rules around price transparency, reporting demands, investment advisory, and market abuse oversight. Also, crypto could be subjected to different tax rules depending on its designation. Furthermore, while the SEC generally has jurisdiction over securities, commodities are primarily regulated by the CFTC.
The designation of cryptocurrencies extensively determines the laws that apply to them. However, this sphere is still largely uncertain in most jurisdictions, including the US. For instance, there is little doubt about recognizing Bitcoin as a commodity. But this is less so for other cryptocurrencies.
While crypto has been popular and adopted, it is relatively still in its early stages. Thus, some crypto-related terms, such as ‘crypto commodity,’ have many definitions. Similarly, most regulators have yet to settle on the proper designation for crypto. Nonetheless, crypto continues to go mainstream. Regulators are thus expected to formulate proper frameworks for their regulation. This way, countries will ultimately address the current uncertainties.