One of the troubles with understanding the cryptocurrency boom is that the existing definitions aren’t consistent. We call all of these things “currencies”, but that implies that they are all money which is incorrect. For instance, Filecoin is basically a decentralized version of Dropbox. It isn’t a currency at all. It has an exchange value, but it isn’t a “currency” in the traditional sense of the word. This space is so new that the terminology still isn’t very clear. I’ll try to make this short and sweet so let’s see if we can add some clarity here.

I really like where Adam Ludwin, founder of Chain, started with this:

“Here’s my definition: cryptocurrencies are a new asset class that enable decentralized applications.”

That’s a really good start. But I think we need to go further. So, to reiterate the basics – crypto assets are just decentralized networks. Bitcoin is a decentralized payment processing network. Filecoin is a decentralized file sharing network. They’re issued by no particular entity and they are self-regulating and self-managing. No one can tell you that you can’t own or buy/sell things with Bitcoin because the decentralized network can’t be controlled by an outside entity.

Now, this is where the accounting gets tricky. We know that crypto assets are non-financial assets. They have to be because a financial asset is an instrument whose value is derived from a contractual obligation with an issuer. That is, the financial asset has a corresponding liability. Stocks, bonds and cash all have issuing parties who are liable in some sense for that financial asset. A non-financial asset has no corresponding liability. Your house is an asset with value, but not necessarily a corresponding liability. A patent is an asset with value, but not necessarily a corresponding liability. Physical gold is an asset with value, but not necessarily a corresponding liability.These are examples of non-financial assets.