Who knew that the naming convention for digital tokens can be so complicated?

by Edmund Yong


You would think that the world had finally wrapped its head around bitcoin after over 10 years and figured out what to call it.

Well, considering that it took scientists 75 years to decide that Pluto is not a planet; or 40 years to find out that the Piltdown Man is really something else, we could be in this for the long haul. Meanwhile, humanity has to come to terms that cucumbers are fruits not vegetables; jam goes on the scone before cream; and nobody honestly cares how “caramel” should be pronounced.

As for the rest of crypto kind, we have our own pickle cut out for us.

“Same Same But Different”

How many times are our senses assaulted with confusing terms adopted by various regulators, like ‘digital asset’ or ‘virtual currency’ or ‘crypto token’ or any permutation thereof, without any meaningful difference between them?

Take a short trip round the ASEAN Big 6:

  • Indonesia’s Bappebti is settling on Digital Assets to avoid connotations of currency;[1]
  • Malaysia’s Bank Negara defines Digital Currency while SC refines it further with Digital Tokens (and uses Digital Assets interchangeably);
  • Philippines’ Bangko Sentral issues circulars on Virtual Currency and SEC classifies each of the Utility / Asset / Security Tokens distinctly;
  • Singapore’s Monetary Authority has guidelines on Digital Token offerings and the more nuanced Digital Payment Tokens in its Payment Services Bill;
  • Thailand decrees on its Digital Assets Act under SEC purview which defines both Cryptocurrencies and Digital Tokens; and finally
  • Vietnam’s State Bank and Ministry of Justice have yet to decide on nomenclature.[2]

Come on folks, we need you to make up your mind! Some ASEAN-level synchronicity would be nice.

In our self-important quest to make crypto a little less confusing, here is a cheat sheet to help mortals like us and the powers that be. A method to the madness if you will.

“Why You So Like That”

It does seem like bitcoin is facing an identity crisis in this region: “To bit or not to bit,” that is the question. But just like hawker food in Southeast Asia, it is what it is – highly decentralized, widely distributed, deeply divisive.

Thankfully, there is some alignment. During the G20 Summit last year (March 2018 in Buenos Aires), the gathering view among world leaders was that cryptos “lack the traits of sovereign currencies” and cannot fully function as money. So they coalesced around the term “crypto-assets”.[3] Japan is hosting the Summit this year in Osaka and guess what their Financial Services Agency calls it? They are going for “crypto-assets” as well to avoid confusion with legal tender; apparently certain quarters on the advisory panel felt the term “virtual currency” would be misleading.[4]

The European Banking Authority (EBA), part of the European System of Financial Supervision (a regulatory agency of the EU) uses “crypto-assets” in its recommendation report, as does the European Securities and Markets Authority (ESMA) – because such asset “depends primarily on cryptography and distributed ledger technology as part of its perceived or inherent value”. And to distinguish it from actual fiat currencies that might someday be issued by central banks using blockchain, “crypto-assets” additionally means “an asset that is not issued by a central bank”.[5]

While the EBA acknowledges that there is no common taxonomy by international standard-setting bodies, there are initiatives taking it forward, including one by the Financial Stability Board pursuant to the Buenos Aires summit, in coordination with the Basel Committee on Banking Supervision (BCBS), and Committee on Payments & Market Infrastructures – International Organisation of Securities Commissions (CPMI-IOSCO).[6]

What about the esteemed and foreboding Financial Action Task Force (FATF)? Pretty sure they have some sort of last word if not the loudest. FATF dropped the “crypto” prefix and substitutes it with “virtual asset” to refer to digital representations of value that can be traded or transferred, and can be used for payment or investment purposes including as medium of exchange, unit of account, and/or store of value. It points out emphatically that “virtual assets” are distinct from fiat currency, which is the money designated as legal tender by a particular country.[7]

There you have it.

“Die Die Must Try”

One thing is clear – there is a growing international consensus to treat bitcoin as an asset.

To the crypto nut, this is semantics. But for lawmakers, semantics is everything. Cryptos can be classified as assets for the purpose of capital gains tax, even though it is used like a currency to exchange for day-to-day goods and services. For assets of an intangible and movable nature like crypto, identifying and enforcing legal property rights is another source of intrigue by itself.

The case of Lithuania makes a charming epilogue:

Earlier this year, the central bank of Lithuania decided to replace “virtual currency” with the term “virtual assets” to reflect changing market realities. The updated position defines how and when virtual assets can be used for payment, receive payment via third parties, and set up investment funds in virtual assets, etc. Its Minister of Finance had openly acknowledged crypto as “the brave new economy (that) is here to stay”.[8]

It seems like a very crypto-friendly thing to do, as there are no special rules for capital gains tax in Lithuania…

But you’d probably catch the drift. For corporate and personal income taxes, virtual assets are “recognized as current assets that can be used as a settlement instrument for goods and services or stored for sale” i.e. just like normal currencies. For value-added tax (VAT), virtual assets are treated like “the same currency as euros, dollars etc.” So yeah. And the kicker: “The opinion presented by the Bank of Lithuania concerning the recognition of such a token as securities (to wit, assets) does not necessarily mean that for tax purposes this token will be treated the same way.” [9]

Moral of the story: If you are the taxman, whatever is convenient is worth a try. For the rest of us, it makes no difference what the token is called after all.

Note: Certain parts of this article are for infotainment and should not be taken too seriously.

 

Reference:

[1] blockchainmedia.id/bappebti-kembali-tegaskan-kripto-diatur-sebagai-digital-asset/

[2] english.vov.vn/economy/central-bank-gives-no-permission-to-cryptocurrency-platforms-394614.vov

[3] cointelegraph.com/news/g20-considers-crypto-as-assets-not-currencies-according-to-document-draft

[4] news.bitcoin.com/the-daily-japan-calls-all-coins-crypto-assets-russia-defines-cryptocurrency-as-property/ and leaprate.com/experts/tom-cleveland/officials-in-japan-and-russia-agonize-over-cryptocurrency-definitions/

[5] European Banking Authority, Report with Advice for the European Commission on Crypto Assets, 9 January 2019; and European Securities and Markets Authority, Advice: Initial Coin Offerings and Crypto Assets, 9 January 2019, Appendix 1.

[6] fsb.org/wp-content/uploads/P160718-1.pdf

[7] fatf-gafi.org/publications/fatfrecommendations/documents/regulation-virtual-assets.html

[8] lb.lt/en/news/bank-of-lithuania-position-on-virtual-assets-and-initial-coin-offering-reflects-changing-market-realities and bitcoinist.com/lithuania-ico-guidelines-brave-new-crypto-economy-stay/

[9] vfahub.com/lithuania-ico-regulatory-guidelines/