Various notions and suggestions have been made on the definition of cryptocurrencies, with the Commodity Futures Trading Commission (CFTC) considering cryptocurrencies as commodities, the Internal Revenue Service (IRS) viewing them as assets, or other organizations believing that a new classification group will emerge. Classifying cryptocurrencies into a specific group is necessary because only when the classification process is completed can laws for cryptocurrencies be developed. However, with the current diverse functions of specific cryptocurrencies, providing a specific definition for cryptocurrencies has been proven to be a significant challenge.

1. Basic definitions of classification

1a. Commodities

The common definition of the commodity group is tangible products believed to be input materials in the production of various final products. Some examples of the commodity group are metals and agricultural products.

1b. Securities

Securities can be understood as financial instruments or financial assets carrying monetary value. Examples of securities are bonds, stocks, and exchange-traded funds (ETFs).

1c. Currency

The final group is currency, which is used as a medium of exchange for goods and services. This specific group is often issued by the government, and the value of the currency is built by the economy and the issuing government.

2. Understanding the clasification groups

2a. Commodities

One main feature of commodities is interchangeability, specifically the ability to exchange one specific product for another specific product of a similar type with minimum differences. When two products are equivalent in quality, a producer of one barrel of oil will be able to exchange that barrel of oil with another barrel from a different producer.

Currently, there are specific commodity markets to facilitate the buying and selling of commodities for participants based on the principle of supply and demand, and commodities are often traded through contracts.

2b. Securities

Securities are supported by the issuer or collateral assets, such as bonds being a form of borrowing from investors or stocks representing ownership in an organization. The buying, selling, and transfer of ownership rights for securities are traded in the financial market.

2c. Currency

When compared to commodities, modern currency can be considered valueless. Specifically, a paper bill will not carry inherent value like a coin made of gold or silver. The value of a currency does not depend on the material used to create it but instead relies on the economy and the strength of the issuing government. An example of this is 1 USD being exchangeable for 82.83 INR.

3. Which classification group will cryptocurrencies fall into?

3a. Commodities

The characteristic of being interchangeable along with the ability to buy and sell is perhaps the reason why the CFTC considers cryptocurrencies as commodities. However, does this apply to all cryptocurrencies? One of the characteristics of commodities is their safeness. Specifically, in the case of high inflation, gold, for example, tends to increase in value, as for cryptocurrencies, this is not certain.

3b. Securities

The distinctive feature of securities is the backing provided by collateral assets or the issuer, which does not entirely apply to cryptocurrencies, except for Stablecoins. Stablecoins, a type of cryptocurrency pegged to another asset or currency, could have support. Other cryptocurrencies typically lack this backing. The nonexistence of backing for cryptocurrency is due to the nature of cryptocurrencies operating in a decentralized manner, resulting in private entities and governments not having the ability to control cryptocurrencies.

3c. Currency

The most significant difference between currency and cryptocurrencies is perhaps the nature of the technology behind cryptocurrencies. Similar to securities, currency is backed by the government and managed by the government. This does not fully apply to cryptocurrencies because when operating on blockchain technology, cryptocurrencies function independently from the issuer, and no entity can fully control a particular cryptocurrency.

The accessibility of cryptocurrencies can also be considered simpler compared to traditional currency. Due to the decentralized nature of cryptocurrencies, users can own cryptocurrencies with just internet access. However, this is not entirely true for traditional currency.

4. Will a new classification group emerge? 

Although the definition of cryptocurrencies depends on the perspective of various organizations, the exact answer regarding the current group that cryptocurrencies belong to is not clear-cut.

Based on the nature and unique applications of different cryptocurrencies, will there be a new classification for cryptocurrencies in the future?