Tokenized Assets Or Asset-Backed Crypto?

So, what’s behind all that crypto volatility? And can it be tamed?

Here are a few theories about crypto volatility

So, what makes crypto so volatile? There are a few theories. Some suggest that it is because the product, despite having been around for nearly 10 years now (at least in the form of bitcoin), it is still new in the market.

Another theory revolves around cryptocurrencies’ finite nature. Unlike fiat currencies, there is a finite number of bitcoins that will ever exist. This makes it relatively scarce and thus volatile for now. The other analogy and one that is popular with traditional investors, suggests that cryptocurrencies lack intrinsic value and for this reason, they are bound to be volatile since they are traded purely based on speculation.

All these perceptions have some truth in them, but it could also be argued that some of the views are over the top. In fact, some startups have launched their own versions of disruptive altcoins in a bid to addressing crypto volatility. But are some of the startups launching ICOs missing the picture?

Are tokenized assets cryptocurrencies?

That’s one of the biggest debates in the market right now. These altcoins go by many names but are commonly referred to as asset-backed cryptocurrencies or asset-backed altcoins. However, according to experts , the correct name for such products should be tokenized assets. They are not cryptocurrencies and thus should not be referenced as so. To add substance to this argument, it is proper to use a couple of illustrative examples for each case. So, let's start with the pioneer of all cryptos.

Bitcoin is the pioneer cryptocurrency, but the market has now expanded

Bitcoin is the world’s most popular cryptocurrency. And while some of the iconic legends of the global financial markets like Warren Buffett and Berkshire Hathaway (NYSE:BRKa) Vice Chairman Charlie Munger are huge critics, bitcoin has gained tremendous popularity with traditional investors over the last couple of years and continues to generate the kind of aura that’s popular with disruptive products and high growth assets. So, one would wonder whether bitcoin has intrinsic value.

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In a sense, you could say it does. But it is not in the same way analysts dissect the value of stocks. I briefly pointed out that cryptocurrencies have a finite quantity available for circulation to investors. This is one of the factors that gives cryptocurrencies value.

Besides this, a cryptocurrency is an immutable and secure product developed to create a consensus among distinct participants in a decentralized network. This concept gives cryptocurrencies the power to democratize service delivery in various markets using the disruptive force of distributed ledger technology.

For this reason, crypto investors are incentivized to buy the likes of bitcoin with the view that the kind of power provided by this new concept of digitized currencies could be worth more in the future. Therefore, cryptocurrencies try to address present challenges (and potentially future ones) which could be overcome by using blockchain technology. This concept is being adopted in many industries where similar challenges have wrecked markets, especially in the digital space.

The digital publishing and advertising space have also emerged as some of the most interesting segments that startups can disrupt with their own versions of cryptocurrencies or altcoins.

Tokenization of the digital space could mean no more Cambridge Analytica debacles

With the global internet reach expanding exponentially, the digital space has continued to attract more players over the years including both publishers and advertisers. However, as the numbers increased, so did competition. This has unexpectedly created a breeding environment for fraud and cybercrime in the process resulting in massive losses for both advertisers and publishers.

According to reports, publishers are losing more than $7 billion worth of potential ad-revenue because of bot-inflicted fraud. Currently, more than 600 million smartphones and computers already run ad-blocking programs, which means less ad-revenue revenue for publishers. Reports also suggest that digital ad-revenue for publishers is down more than 60% as more internet users continue to run ad-blocking programs on their devices.

On the other hand, because of an increase in bot traffic, advertisers have found it more difficult to optimize targeted ads, which means more users are likely to ignore their ads. It is becoming tougher to get the right information on what they are paying for.

This is one of the reasons publisher focused altcoins like SteemIt (STEEM) and Basic Attention Token (BAT (LON:BATS)) have been launched.

But an even a more interesting product looking to put the matter to rest is the Online.io token (OIO), developed by Online Blockchain Technologies to revolutionize the entire digital experience for users and publishers. The Online.io solution works by rewarding publishers who possess the OIO tokens with ICE tokens determined by time spent by visitors on their websites.

The ICE token can then be used like other regular cryptocurrencies or exchanged with fiat currency. On the other hand, users visiting OIO compliant websites can benefit from faster and secure ad-free browsing. After the recent Facebook (NASDAQ:FB) data breach fiasco, such a product could disrupt the digital space thereby averting cases like Cambridge Analytica from happening in the future.

So, does this make Online.io, BAT, and STEEM cryptocurrencies or tokenized assets? The concept behind their creation appears to be powered by their ability to influence various technological aspects of the digital space.

That brings them closer to the likes of bitcoin than to tokenized assets.

So, what exactly is the concept behind tokenized assets?

Tokenized assets emerged over the last few years with the goal of providing some tangible value to back crypto assets. We have tokenized assets like SparkleCoin and PinkCoin that are backed by GIA certified diamonds stored with leading gold wholesalers. We also have tokenized assets that are backed by Silver like Ethereum Link. So, this is another space that is growing rapidly as companies look to capitalize on the power of distributed ledger technology.

Over the last few quarters, the concept of tokenization of assets has moved a notch higher and now we even have startups that are looking to tokenize real estate assets, oil, metals, and energy. Clearly, when you look at the ideology behind these tokenized assets, you can easily draw close comparisons to trading ETFs or CFDs in the stock market.

They are both traded based on the underlying value of a real asset, in which case for ETFs or CFDs, that is represented by the price of the underlying fund or stock. This is very different from the concept used to create cryptocurrencies and altcoins like Bitcoin, Cardano, Monero, BAT, and OIO.

Therefore, this explains why many experts are against the idea of calling tokenized assets asset-backed cryptocurrencies. They are not cryptocurrencies in any measure and are closer to being likened to some form of ETFs or CFDs than they are to being cryptocurrencies.

Author disclosure: Trading cryptocurrencies or investing in ICOs involves huge risk. This is not an endorsement to invest in or trade any of the cryptocurrencies or stocks mentioned in this article. I have no positions in currencies and stocks mentioned.

Written By: Nicholas Maithya