Understanding Crypto-Assets: From Coins to Programmable Assets

The plan is as follows:

1. Describe what a crypto-asset is.
2. Reveal, briefly and quickly, why coins came into existence.
3. Why and when tokens were born.
4. And moving on to programmable assets today.
5. Finally, present an incomplete but understandable classification of crypto-assets and draw conclusions.

And of course, as always, to reveal the practical aspects.

A crypto-active is…

I’ve tried to define it in different ways, today I’ll limit myself to the standard approach: generic definition and plus – species distinction.

And I’ll take it not just anywhere, but the UN website: “Cryptoassets are digital representations of value based on cryptography and a decentralized peer-to-peer architecture based on distributed ledger technology (DLT).

Which allows two parties to communicate directly with each other without the need for a trusted intermediary.”

To reiterate that DLT and blockchain – overlap, but not so much that the concept of blockchain is entirely within DLT, I will not. I’ve done it more than once. It’s not about that now, but it’s obligatory to note.

The second, very important aspect, is the reason these assets came into existence. There are many reasons for this, but I will identify four:

1. Historical: centralized finance since the economic crises from 1907 to 2008 has at least degenerated in terms of trust. A very different approach was needed, reflected in bitcoin as the first cryptocurrency.
2. Social: society has gotten bigger (8 billion today vs. 1.5 billion at the beginning of the 20th century) and more complex, and therefore it is extremely difficult to centralize everything.
3. Cultural: the crypto-anarchist movement that emerged in the late 1980s and 1990s played a key role in the development of the digital society (Julian Assange, Edward Snowden, the Panama dossier, and many others are all strands of the same tangle).
4. Technological: after the advent of PoW, crossed with timestamps and other innovations, the world didn’t want to be the same.

Of course, these are all extremely general statements, but I’ll try to expound on them with specific and meaningful examples.

Coins

The first thing to understand is that any Web3-format network, whether it be Bitcoin (blockchain 1.0), Ethereum (blockchain 2.0), or next-generation distributed networks (Octopus, dFinty, etc.), must have an internal measure of transferable value (value) to prevent spam.

This is the primary function of the Bitcoin network’s native token – the very bitcoins that consist of satoshi and have the ticker symbol BTC (in the centralized world, XBT).

So, keeping in mind that spam has been a problem since the first minutes of the Internet’s life, Satoshi, Hal Finney and others couldn’t get around the issue.

This is how the genesis-block of the derivative function, much more significant from the perspective of the evolution of finance and technology, was assembled.

A tool was born that made it possible to transmit value through an untrusted environment without a centralized intermediary. Blockchain.

That’s what makes this technology different, not that it’s some “special database.”.

No, as a database blockchain is a priori bad (even compared to IPFS, not to mention more advanced examples), but as a toolkit of the designated type – good. And hard.

Technically speaking, a koin is nothing more than…

A native token of a particular network that has a number of hard-coded functions: usually related to transaction processing and/or application operation.

How advanced blockchain solutions are in this is easy to see by comparison: take Script
in Bitcoin and solidity Ethereum. It’s heaven and earth..

If you compare what can be done through Script in Bitcoin (even with the help of the pluses) and through advanced Rust/Go libraries in, say, Near, Solana, etc, it is easy to understand that a coin is: a hard-to-program at a low level, low-level network token that has minimal functionality.

Usually limited to paying for transactions within the network and/or paying for running applications (dApps).

This will sound overly simplistic to developers, naive to bitcoin-maximalists (especially in HYIPs), redundant to system architects, but still the point will have to be grasped, no matter how fuzzy it may seem. Let me explain.

That was the beginning: we learned how to hardwire a technically meaningful value transmission tool into the fabric of blockchain.

The continuation of the first built on the assumption: since there is a #1 cryptocurrency, it can have disadvantages. So let’s try to take any flaw(s) and turn it into a positive quality.

This is how altcoins were born.. Here are a few examples to explain:

• X11 (Dash): born because Bitcoin’s anonymity is clearly not enough.
• Litecoin is the stepchild of Ch.. Lee, who announced himself in 2011 because Bitcoin’s speed seemed insufficient to many.
• Ethereum and its killers, each of whom wanted to turn blockchain 2.0 into something more: cheaper, more scalable, and so on.

But do you remember namecoin? Or that USDt used to be on Omni too? Or let’s put the question squarely: do you feel the difference between altcoins and dApps, protocols, and even entire ecosystems built on and on top of Bitcoin?

That was vector number two.

But it didn’t end there, either.. Then altcoins began to have other alternatives. The first generation of altcoins was replaced by the second, the second by the third etc And it was already vector number three.

So we get an overlap of the following trends:

1. Improvement of blockchain itself as a tool: blockchain 1.0 worked mostly with its own token (colored
coins didn’t catch on, and NFT wasn’t reborn in any digestible form until 2023). Blockchain 2.0 introduced interchangeable and non-interchangeable tokens, as well as a number of standards attempting to combine them.

Blockchains 3.0 has gone to different levels of abstraction relatively:

• speeds (Zilliqa, The Power, Bitshares (Graphene) family);
• anonymity (Zcash, Monero, Dash, etc);
• consensus combinations (Decred, Solana, etc);
• And a lot more.

2. The increasing complexity of the levels of abstraction relative to the assets themselves has occurred in parallel to these processes:

• Coins;
• tokens;
• programmable assemblies

But before we go through the evolution to the present day, let’s elaborate on tokens.

Tokens

With all the variety of altcoins, why do we need tokens as well? Here again there is not going to be one answer, although each one given will be a single answer:

• Tokens have many more functions than just transfer or send: many more.
• Tokens can combine different standards: you can see that especially in the number of EIPs.
• Tokens allow the preservation of value within the blockchain ecosystem, and from here we get (using Ether as an example): a) the technological aspect, where blockchain and smart contracts give birth to a decentralized computer to run and run dApps; b) the economic aspect. where more and more industries are spawning the following: out of ICO came DeFi, NFT, and out of NFT & DeFi came NFT 2.0 and so on; d) the organizational: projects are getting more templates to build themselves and their businesses into a specific ecosystem.

For this reason, the transition from koin to token is an inheritance of the universal principle of increasing abstraction levels: the more complex the structures, the higher their abstraction levels.

And that’s why a new asset class – programmable assets – was born at the turn of 2020-2021.

Shall we discuss them?

Programmable assets

What exactly are they?

General categories, where there is not yet a unified generic concept, but are used as synonyms:

• Programmable Assets;
• Customizable Assets;
• universal assets;
• other

The same goes for the largest subclass of such assets:

• NFT 2.0;
• Smart NFT;
• Customizable NFTs;
• miscellaneous.

There are also special terms that narrow down the content.

Financial NFTs:

• NFT as collateral (NFTx, NFTb);
• NFTfi (NFT+DeFi);
• NFT-key liquidity (Uniswap v.3.0);
• collateralized NFTs;
• other

Wrapped NFTs (wNFTs): aka “charged” NFTs.

Dynamic NFTs:

• dNFTs modified by scripts (chainlink);
• cNFTs, or NFTs, changed by the community

Not single-blockchain NFTs:

• Multichain NFT;
• Crosschain NFT

There are other approaches.

One must realize that the primary classification presented has at least two problems:

• First, it is not complete (closed).
• Second, it mixes technological (wNFT, dNFT, say), marketing (“charged NFT”), economic, and other aspects into one bottle, and this is fundamentally wrong

But this is always the case in the early stages: think at least of the primary broth hypothesis. So I’ll try to dig even deeper.

The first thing to consider is that all PA projects can be divided, albeit roughly, into three basic categories around which the PA market in general and NFT 2.0 in particular is developing.

These are: protocols, oracles, indices.

What are the differences?

• Protocols focus on onchain mechanics.
• Oracles serve as providers and at the same time verifiers of onchain data from protocols, and are also able to handle offchain data as well.
• Indexes are synthetic products formed from different ratios of protocols and oracles

Colleagues at one time tried grading in a different way – through functional affiliation. This is what it looks like:

• Fractionalization (Fractional, Unic.ly, NFT20, etc).
• Landing (TrustNFT, BendDAO, JPEG’d, etc).
• Indexes (Envelop, NFTx, BridgeSplit, Index, etc).
• “Investment DAOs (Flamingo DAO, Palm DAO, Pleasr DAO, etc).
• Marketplaces (OpenSea, Rarible, Gem, etc).
• Derivatives (Envelop, Fuku, Putty, Nifty Options, etc).
• NFT financials (Axie, Sandbox, StepN, etc).
• Rentals (Unitbox, Rentable, Prom, reNFT, etc).
• Pricing (UpShot, Taker, SudoSwap, etc).
• Analytics (Dune, NFTgo, Nansen, etc).

But as you can see, here again there is a mix-up that is already stranger and scarier: NFT 1.0 and 2.0 overlap too tightly..

So let’s still try to highlight the features of PAs using NFT 2.0 as an example, since this asset subclass has more or less crystallized from 2020 to 2023.

The evolution of assets is…

Putting it all together, we get the following differences in crypto-assets in their geological cross-section:

By programmability:

• for coins, it is minimal;
• For tokens, it is medium;
• For PAs – maximum (as of today).

On connectedness:

• a koin depends either on itself or on another koin (gas, as in Ontology), but as a rule, and this relationship is reciprocal;
• tokens depend on a koin.

PAs can depend on both koin and token, but can also depend (in multichain links) on different tokens as well as other onchain and offchain factors.

Say, a token can only be born if the weather forecast was bad and it was captured through the forecaster’s Collateral SBT (and it doesn’t matter if it was AI, human or Robonomics’ suite of sensors).

On functionality:

• Coins are generally divided into universal (BTC), transitional (ETH/GAS), transactional, and gas;
• it is common to divide tokens into interchangeable, non-interchangeable, semi-interchangeable, but within

  There are subtypes within each: for example, SBT is a subset of NFT (not only non-interchangeable, but also non-transferable)

There are other grading criteria as well.

Thus, the following types of assets can be accurately distinguished:

Coins:

• universal;
• transactional;
• gas

Tokens:

• interchangeable: erc-20 and analogues;
• semi-replaceable: erc-3525;
• non-interchangeable: classic NFTs (ERC-721), tokens unique at the collection level (ERC-1155).

Programmable assets: they can be in the form of any tokens, derivatives, linked assets, and so on. They can be divided into two large groups:

• NFT 2.0 (dNFT, wNFT, cNFT, etc);
• other PAs

It may seem that PA is a redundant category. But, again: just as ICO gave birth to DeFi markets (AMMs, DEXs, etc).

NFT and many others, the PA market, together with DeFi 2.0, DAO-mechanics, ZKP-methods can change the crypto-industry beyond recognition.

Perspectives

There are quite a lot of them, but I’ll try to outline the ones that look the most attractive:

1. ZKP + Cross mechanics
   With wNFT/dNFT and other assets: in the era of CBDC
   This will be a much needed tool in the era of CBDC.
2. Transactional Reputation through the fillable SBT model: not many examples now, but also the layout of the theory ended less than a year ago, with the release of Vitalik Buterin’s article.
3. Secured derivatives is the most interesting and biggest market imaginable