А. А. Kud

Methodology for Determining Whether

a Blockchain Token Corresponds to a Digital Asset

Methodical Manual

Kharkiv

“KRPOCH”

2019

UDC 001.891.5:330.47:33.053.22(072)

DOI 10.26697/9786177089079.2019

К 88

Recommended for publication by the scientific and methodological

council of the Research Institute KRPOCH

(Protocol No. 01 dated March 30, 2019)

Reviewers:

Kucheriavenko N. P. – Doctor of Legal Science, Candidate of Economic

Sciences, Professor, Head of the Department of Financial Law of the

Yaroslav Mudryi National Law University, First Vice-President of the

National Academy of Legal Sciences of Ukraine.

Marchenko O. S. – Doctor of Economic Sciences, Professor, Professor

of the Department of Economic Theory of the Yaroslav Mudryi National

Law University.

Makarichev А. V. – Doctor of Physics and Mathematics, Associate

Professor, Professor of the Department of Transport Technologies and

Technical Services of the Institute of Mechanics of NUWEE, Lead

Researcher of the Department of Transport Systems and Logistics of

KNAHU.

К 88

Kud А.A. Methodology for Determining Whether a

Blockchain Token Corresponds to a Digital Asset: methodical

manual / Scientific Research Institute KRPOCH. Kharkiv:

KRPOCH, 2019. 52 p. doi: 10.26697/9786177089079.2019

ISBN 978-617-7089-07-9

The publication provides criteria and indicators of the

characteristics of a blockchain token, presents the methodology for

determination and mathematical processing of data. The methodological

manual has been developed in order to establish whether a blockchain

token is a digital asset based on the results of its research, including the

research of the legal characteristics of a blockchain token, and is intended

for specialists in the fields of information and digital economy, lawyers,

financial organizations and representatives of business communities.

UDC 001.891.5:330.47:33.053.22(072)

ISBN 978-617-7089-07-9 © KRPOCH, 2019

CONTENTS

INTRODUCTION

SECTION 1. THEORETICAL BASIS

OF A BLOCKCHAIN TOKEN AS A DIGITAL ASSET

1.1. Development of the Blockchain Technology:

Cryptocurrencies, Tokens, Digital Assets

1.2. Complex of Definitions of the Basic Concepts Related to

a Blockchain Token

1.3. Components in the Context of the Definition of the Term

“Digital Asset”

1.4. Characteristics of the Criteria and Indicators of a

Blockchain Token’s Correspondence to a Digital Asset

SECTION 2. ORGANIZING AND CONDUCTING

THE RESEARCH OF CHARACTERISTICS

OF A BLOCKCHAIN TOKEN

2.1. Research of Characteristics of a Blockchain Token

2.2. Analysis of Research Results

2.3. Interpretation of Research Results

SECTION 3. MATHEMATICAL FORMALIZATION

OF METHODOLOGY FOR DIAGNOSING WHETHER

CHARACTERISTICS OF A BLOCKCHAIN TOKEN

CORRESPOND TO THOSE OF A DIGITAL ASSET

3.1. Triple Classification Based on the Results of the

Diagnostics on Whether a Blockchain Token Corresponds to

a Digital Asset

3.2. Reliability of the Methodology for Diagnosing the

Blockchain Token Based on the Number of Points Received

CONCLUSIONS

THESAURUS

REFERENCES

INTRODUCTION

The modern global financial system is going through significant

changes, which are caused largely by the formation of its new field –

the information economy based on the blockchain technology.

The implementation and development of the distributed ledger

technology similar to account books, each of which has the same data

records and is jointly supported and controlled by a distributed

network of computer servers, have contributed to the emergence of a

new technology – blockchain.

Today, the blockchain technology is considered by society as a

new mechanism for the dissemination of digital information. In

particular, it attracts financial experts, who first became interested in

blockchain as the technology of an account book, but then realizing its

enormous potential, started creating digital currencies on its basis and

looking for other ways of its application. The active implementation

of the blockchain technology and the revealed advantages of its

application reflect global transformations, which affect political, legal,

socioeconomic and other areas of social life.

Thus, it becomes obvious that the sooner institutions and

organizations, both governmental and non-governmental, can use this

technology to optimize their activities, the more innovative and

competitive their products and services will become. The use of

blockchain tokens for registration and exchange of property rights to

assets and, generally, of any kind of rights, will lead to a drastic

transformation in various fields, comparable in importance to the

replacement of typewriters by computers, not to mention the

optimization of processes related to accounting and information

exchange by means of digital assets.

The main objectives of this manual are: to display the

characteristics of a blockchain token that are laid down in the term

“digital asset”; define criteria and indicators of characteristics of a

blockchain token; present a methodology for diagnosing a blockchain

token for correspondence to a digital asset and a method for

mathematical data processing for such evaluation.

Thus, this methodological manual will allow you to establish

the correspondence of any blockchain token to a digital asset.

SECTION 1

THEORETICAL BASIS

OF A BLOCKCHAIN TOKEN AS A DIGITAL ASSET

1.1. Development of the Blockchain Technology:

Cryptocurrencies, Tokens, Digital Assets

The development of the digital economy as a whole, and of

digital technologies in particular, has led to the emergence of a new

term “digital asset” and to the stage-by-stage implementation of

related processes.

The use of the term “digital asset” in the modern understanding

is primarily caused by the emergence of the blockchain technology

and cryptocurrencies.

Blockchain is a particular type or subset of the so-called

distributed ledger technology (DLT). This technology is a mechanism

that employs an encryption method known as cryptography and a set

of specific mathematical algorithms to create and verify a constantly

growing data structure, to which you can add data and from which you

cannot delete the existing data – the form of a chain of “transaction

blocks”, which functions as a distributed ledger.

In simple terms, blockchain can be considered as a distributed

database. Additions to this database are initiated by one of the network

nodes, which creates a new block of data that can contain various types

of information. This new block is transmitted to every party in the

network (using cryptography). Other nodes collectively determine the

block’s validity in accordance with a predefined method of

algorithmic validation, commonly referred to as a “consensus

mechanism”. Once validated, the new block is added to the chain of

blocks of the public distributed ledger (blockchain), which,

essentially, results in an update of the transaction ledger and is

distributed across the network.

One of the key advantages of the blockchain technology is that

it allows simplifying the execution of a wide array of transactions that

usually require third-party intermediaries, i.e. eliminating

intermediaries from the process of interaction between the two parties.

Despite the fact that the blockchain technology is often

associated with digital or virtual currency schemes, payments and

financial services, its scope of use is much wider. In practice,

blockchain is already used in various sectors (e.g. trade and

commerce, healthcare, public administration, logistics, banking, etc.).

It should be noted that cryptocurrency is the first well-known

application of the blockchain technology, which formed the basis of

the cryptocurrency market and resulted in the whole variety of

cryptocurrencies. At the same time, it can be noted today that

blockchain has clearly outgrown the cryptocurrency context and, as a

technology, it can be applied in many areas of social life.

Since the emergence of the first virtual currency in 2009, the

topic of cryptocurrencies and blockchain has been studied by various

international organizations and state institutions, each of which

approached it differently. The fundamental documents for clarifying

the essence of the terms under consideration are official publications

of international regulatory and supervisory bodies in this area.

The European Central Bank (ECB) classified cryptocurrencies

as a subgroup of virtual currencies. In its report on virtual currency

schemes in 2012, the ECB defined such currencies as a type of

unregulated, digital money, which is issued and usually controlled by

its developers, and used and accepted among the members of a specific

virtual community.

The ECB further clarified that three types of virtual currencies

can be distinguished depending on the interaction with traditional

currencies and the real economy:

1) virtual currencies, which can only be used in closed virtual

systems, usually in online games;

2) virtual currencies that are unilaterally linked to the real

economy: there is a conversion rate for purchasing currency (with

traditional money), and the purchased currency can subsequently be

used to purchase virtual or real goods and services;

3) virtual currencies that are bilaterally linked to the real

economy: there are conversion rates both for purchasing and selling

such currency; the purchased currency can be used to purchase both

virtual and real goods and services [1, p. 13–19].

In a more recent report of 2015, the ECB put forward another,

largely updated, definition of virtual currencies. It defined virtual

currencies as digital representations of value not issued by a central

bank, credit institution or e-money institution, which in some

circumstances can be used as an alternative to money [2, p. 4].

Like the ECB, the International Monetary Fund (IMF) has

categorized cryptocurrencies as a subset of virtual currencies, which it

defines as digital representations of value issued by private developers

and denominated in their own unit of account. [3, p. 7].

According to the IMF, the concept of virtual currencies covers

a wider array of currencies ranging from simple derivative financial

instruments (IOUs) of virtual currencies, which are backed by various

assets such as gold or real property, to electronic money and

cryptocurrencies.

The Committee on Payments and Market Infrastructures

(CPMI), a body of the Bank for International Settlements (BIS), has

defined cryptocurrencies as digital currencies or digital currency

schemes.

These schemes have the following key features:

 they are assets whose value is determined by supply and

demand, similar in concept to commodities such as gold, but with zero

intrinsic value;

 they use a distributed ledger, which allows remote peer-to-

peer exchange of electronic values in the absence of trust between the

parties and without the need for intermediaries;

 they are not operated by any specific individual or institution

[4, p. 4–7].

The European Banking Authority (EBA) has proposed to refer

to cryptocurrencies as virtual currencies, which it defines as digital

representations of value that are neither issued by a central bank or a

public authority, nor necessarily attached to a fiat currency, but are

used by natural or legal persons as a means of exchange and can be

transferred, stored or traded electronically [5, p. 11].

The European Securities and Markets Authority (ESMA) also

refers to cryptocurrencies as virtual currencies in a pan-European

warning issued in cooperation with the European Insurance and

Occupational Pensions Authority (EIOPA) and the EBA. Fully in line

with the EBA’s definition, virtual currencies are defined as digital

representations of value that are neither issued nor guaranteed by a

central bank or public authority and do not have the legal status of

currency or money [6, p. 1].

The World Bank has classified cryptocurrencies as a subset of

digital currencies, which it defines as digital representations of value

that are denominated in their own unit of account, distinct from e-

money, which is simply a digital payment mechanism, represented and

denominated in fiat money. The World Bank has also defined

cryptocurrencies as digital currencies that rely on cryptographic

methods to achieve consensus [7].

The Financial Action Task Force (FATF) as an

intergovernmental organization, which sets world standards for

combating money laundering and financing of terrorism, has

approached cryptocurrencies as a subset of virtual currencies, which it

defines as digital representations of value that can be digitally traded

and function as a medium of exchange; and/or a unit of account; and/or

a store of value, but do not have legal tender status in any jurisdiction.

Thus, virtual currencies can be divided into two basic types:

 convertible virtual currencies that have an equivalent value in

real currency and can be exchanged back-and-forth for real currency;

these virtual currencies can be of a centralized or a decentralized

nature (i.e. they can either have a central administrative authority that

controls the system or no central oversight at all);

 non-convertible virtual currencies that are specific to a

particular virtual domain or world, and under the rules governing its

use, cannot be exchanged for fiat currency [8, p. 4–5].

The properties and functions of some blockchain tokens

resemble the properties and functions of traditional financial

instruments, such as shares or bonds, and are commonly referred to as

“security tokens” or “investment tokens”. Other blockchain tokens

provide their owners with access to specific products or services and

are commonly referred to as “utility tokens”. They can be used to

acquire certain products or services, but they do not constitute a

general-purpose medium of exchange, because, as a rule, they can

generally only be used on the token platform itself.

The distinctive feature of the legal regulation of these relations

is associated with the coordination of regulation of virtual currency

circulation at the national and international levels. In these conditions,

regulation of the virtual currency circulation is associated with a

certain duality of coordination. Firstly, we are talking about

combining the regulation of these relations both within the framework

of national legislation and at the international level. Secondly, social

relations that have to do with the circulation of virtual currencies are

complex in nature, providing both their regulation by means of private

and public law, and the allocation of certain aspects of these relations

as the subject of civil, economic and financial law.

The multi-level correlation of regulatory requirements within

one country also adds some complexity. In 2017, the Uniform Law

Commission (ULC) developed the Uniform Regulation of Virtual-

Currency Business Act, a unified act on the regulation of activities

related to virtual currencies. Economic activities related to virtual

currencies and specified in this act are identical to services that are

already subject to licensing and prudential regulation in the status of

“money providers” or “money transfers” in many states. In 2018, this

act was supplemented by the Uniform Supplemental Commercial Law

for the Uniform Regulation of Virtual-Currency Businesses Act, a

unified act on commercial law for the uniform regulation of virtual

currencies.

The peculiarity of such uniform acts is that they are not

automatically included either in the US federal law or in the legislation

of the federal subjects. These acts are guidelines for policy makers in

the process of legislation development in the relevant field.

A significant number of negative aspects of the application of

virtual currencies are associated with the lack of a legal assessment of

this phenomenon and the uncertainty of their legal nature, which

greatly complicates the development of an appropriate regulatory

framework.

Today, there is no single well-established approach to the

content of the term “virtual currency” at either international or national

levels. In various circumstances, it is defined as money, electronic

money, currency, financial instrument, means of payment, medium of

exchange, type of digital money, digital representation of value, type

of asset, intangible asset, etc. The lack of clarity in the definition of a

virtual currency is also supplemented by numerous identical concepts.

Along with virtual currency, such concepts as “cryptocurrency”,

“cryptoasset”, and “digital financial asset” are used.

The main conclusion that can be drawn from the foregoing is

that there is no generally accepted definition of the term

“cryptocurrency” available in the regulatory space. Most government

agencies and international organizations have refrained from defining

the term altogether. Among those mentioned above, only the World

Bank and the FATF have proposed a clear-cut definition. However, it

is evident that most of the mentioned institutions and organizations

approach cryptocurrencies as a subset or a form of virtual or digital

currencies.

1.2. Complex of Definitions of the Basic Concepts Related to

a Blockchain Token

The research works of scientists in the economic, financial and

legal fields, as well as practitioners in the field of information

technology, who employ various definitions of terms “digital

currency”, “virtual currency”, “cryptocurrency”, “digital asset”,

“virtual asset”, “cryptoasset”, “digital money”, “virtual money”,

“electronic money”, constituted the theoretical value and practical

significance for the development of the conceptual and categorical

apparatus. These terms are not identical and have their own essential

features.

Table 1 presents a complex of definitions of the basic terms

related to a blockchain token.

Table 1

Complex of Definitions

Term

Definition

Cryptocurrency

Special kind of electronic money whose

functioning is based on a decentralized mechanism

of issue and circulation and is a complex system of

information and technological procedures based

on cryptographic protection methods regulating

the identification of owners and recording the fact

of their change [10]

Cryptocurrency

Digital currency, which uses encryption

techniques to regulate the generation of units of

currency and verify the transfer of funds, and

operates independently of a central bank [11]

Cryptocurrency

Digital currency built with cryptographic

protocols that make transactions secure and

difficult to counterfeit, it is not controlled by any

central authority; facilitates execution of any

transaction, as transfers are simplified by using

public and private keys for security and privacy

purposes [12]

Term

Definition

Cryptocurrency

Digital or virtual currency that uses cryptography

for security [13]

Cryptocurrency

Universal, virtual, decentralized and convertible

digital currency unit, which can be used to make

payments for real goods, works, services, and

which can be a system of savings, storage and

investment of funds, which is protected by a

cryptographic code, and everyone can issue it,

retaining their anonymity, and the data on

settlements available to each participant cannot be

falsified [14]

Cryptocurrency

Digital asset that functions as a medium of

exchange and is very similar to digital cash [15]

Cryptocurrency

Digital asset designed to facilitate decentralized

financial transactions and smart contracts on the

Internet; it was first accomplished by solving the

problem of “double-spending” and by using

advanced cryptography and programming; is a

distributed financial ledger used worldwide [16]

Cryptocurrency

Information asset, which is the result of

production, commercial and financial activities of

the enterprise, and is on its balance sheet, as well

as ensures the achievement of its intended goals;

information asset is a communication tool of

financial and economic relations whose

functioning is based on modern information

technologies, telecommunication systems,

cryptography, etc., controlled by the enterprise as

a result of past events and the use of which is

expected to result in future economic benefits [17]

Cryptocurrency

Digital medium that can be exchanged, like

government currencies, and which uses

cryptography or digital security measures to secure

the exchange of digital information and to control

the creation of new units; a digital coin whose

Term

Definition

value fluctuates the same way as stocks’ value, and

its exchange is backed by digital security

measures [18]

Virtual

currency

Created property, which is accounted through the

use of information and telecommunication

technologies; not denominated in the currency of

states, can be used by an indefinite number of

persons to make payments, is not electronic money

and legal tender [19]

Cryptoasset

Cryptographically secured digital representation

of value or contractual rights that uses a particular

type of the distributed ledger and can be

transferred, stored or traded electronically [20]

Cryptoasset

Digital representations of value made possible by

advances in cryptography and the distributed

ledger technology; cryptoassets are denominated

in their own units of account and can be transferred

peer-to-peer without intermediaries [21]

Virtual asset

Representation of currency in some environment

or situation. In this context, currency can be

defined as either a medium of exchange or a

property that has value in a specific environment.

Monetary virtual assets are often called virtual

currency [22]

Virtual asset

Any form of record within a distributed ledger of

records in a digital form that can be used as a

medium of exchange, unit of account or as a means

of value preservation [23]

Digital asset

Any text or media that is formatted into a binary

source and includes the right to use it; digital files

that do not include this right are not considered

digital assets [11]

Digital asset

Digitally stored content (images, photos, videos,

files containing text, spreadsheets or slide decks)

is any content in any format that is stored digitally

Term

Definition

and provides value to the company (user or

consumer) [24]

Digital asset

Collection of binary data that is autonomous,

uniquely identified and has value [25]

Digital asset

Assemblies of metadata that is getting more

appreciated and complicated the more you connect

them, it also means that they can have a limitless

range of applications; most digital assets have a

fixed monetary value; since they represent the

digitization of elements belonging to the user or

organization; the value of assets usually increases

in accordance with their use [26]

Electronic

money

Full-fledged non-cash payment instrument, a

prepaid financial product that does not have a

connection with a personalized bank account and

gives its holder the right to claim the fulfillment of

a monetary obligation by the electronic money

system operator by returning money previously

provided to it (which acts as coverage), which is

recorded without opening individual bank

accounts [27]

Electronic

money

Specialized electronic impulse (file), which is

recorded on a medium containing money

characteristics and a quantitative representation of

the value of the money equivalent, is a prepaid

financial product, is issued after the issuer receives

funds in an amount not less than the value of the

money equivalent, and is the obligation of the

issuer, which receives the right to claim the

repayment by the owner of such money [28]

Virtual money

Internal electronic currency of network

communities, the application field of which is

limited to the acquisition and sale of virtual goods

within such a community [28]

Thus, the modern development of new forms of representing

digital technologies is characterized by such a rapid pace that the

formation of the corresponding theoretical basis and of the concrete

conceptual and categorical apparatus significantly falls behind, which

is why scientific publications equate the above-mentioned categories

or replace some of them with different ones.

By analyzing the above-mentioned definitions, it can be stated

that today there is a substitution of concepts in society, and in most

cases, the term “digital asset” means cryptocurrency. Such tendencies

can be explained by a rather ambiguous status of cryptocurrencies and,

therefore, attempts to minimize the negative attitude towards this

phenomenon.

As practice shows, changes in the field of information

technology and the economy are occurring very quickly, therefore, the

essence and nature of digital assets, which are currently at the stage of

development, are not yet fully understood and accepted by the modern

community. At the same time, it is necessary to take into account the

prospects of using digital assets, since in the future they may become

the universally recognized equivalent of value and have the legal

tender status. Therefore, any classification and systematization of

related concepts is somewhat arbitrary and, in modern rapidly

changing conditions, for obvious reasons, cannot be considered

established yet.

1.3. Components in the Context of the Definition of the

Term “Digital Asset”

Digital asset is still a poorly studied phenomenon for the

economy, therefore, the essential distinction from other objects seems

extremely necessary in the conditions of the development of the

market of information resources and services based on the blockchain

technology.

Indeed, based on the foregoing, we can conclude that today the

term “digital asset” is interpreted differently, which greatly

complicates the understanding of many processes related to the use of

digital assets and quite often affects the distortion and

misinterpretation of information laid down in the basis of existence of

digital assets. Such terminological confusion creates stable conditions

for further establishment of the inconsistency and ambiguity not only

of the term “digital asset” itself, but also of the prospects for its use.

Due to the fact that digital assets have great potential for the real sector

of economy, there is a need for their legal regulation and consolidation

of the definition of “digital asset” in the economic and legal aspects

based on the established essential semantic features [29].

DIGITAL ASSET is an information resource derivative of the

right to a value and circulating in the distributed ledger in the form of

a unique identifier.

When clarifying the definition of the term “digital asset”,

certain essential semantic features represented by four components

have been analyzed:

1) economic;

2) legal;

3) information;

4) value.

Taking these elements into account, its structural components

have been emphasized in the definition of “digital asset”.

Economic component in the context of the definition of the

term “digital asset” is represented in the financial field by a unique

identifier.

The component “in the form of a unique identifier” indicates the

form of representation of a digital asset and the existence of a unique

name. The alphanumeric code assigned by the system, in which the

digital asset circulates, allows distinguishing a specific digital asset in

the distributed ledger and obtaining the necessary information about

it. The given properties of a unique identifier of a blockchain token

transaction allow individuals and business entities to conduct the

balance accounting of a digital asset, which enables them to calculate

the main economic indicators of activity, including production of

goods, cost of production, profit and profitability.

Digital assets obtained a unique property with the emergence of

the distributed ledger technology, whose structure guarantees safe

information storage and the possibility of asset verification. Any

changes made to the distributed ledger (blockchain) automatically lead

to the generation of a new unique identifier, which eliminates the

possibility of duplication and illegal use of the asset. The information

about a digital asset contains the following characteristics: its location,

registration, legal restrictions and other distinctive features and

properties. Blockchain provides the conditions for identifying a digital

asset by giving it a unique hash code, which allows assigning such an

asset to a specific entity.

Legal component in the context of the definition of the term

“digital asset” is represented in the legal field by a derivative of the

right.

Having analyzed different meanings of the term “derivative”,

we can conclude the following: all these terms have a certain basic

phenomenon, the subject (source), which determines the origin of a

derivative. In other words, “derivative” emerges as a result of the

transformation of the source (basic phenomenon) and is able to retain

basic properties or rely on them. In turn, the properties of derivatives

are predetermined by the properties of sources.

The definition of the term “digital asset” uses the subjective

approach to interpreting right as the type and measure of a person’s

possible behavior, which are governed by legal norms.

According to the analysis of the definitions of the component

“derivative of the right”, we can state that they most fully reflect the

essence of the principle laid down in the definition of the term “digital

asset”. A digital asset is not the right to a value in its interpretation,

but it has attributes of a derivative of the right to a value.

Information component in the context of the definition of

the term “digital asset” is represented in the IT field by an

information resource circulating in the distributed ledger.

Information resource is information structured and organized in

a certain way and recorded on a tangible medium. Information can be

stored, transmitted, used, and updated. An information resource has

the properties of practical significance and usefulness as well as the

possibility of multiple use (“inexhaustibility”). Unlike other types of

resources (natural, economic, temporary), the quantity and quality of

information resources increase as they are used. Such a cumulative

effect along with the development of modern technologies contributes

to the rapid increase in the information potential of society as a whole.

Thus, a digital asset is an information resource in the sense that

the information on a value presented in a digital form has such main

properties of an information resource as:

a) information is structured according to certain parameters and

categories;

b) information is recorded on a digital medium;

c) information can be stored, transmitted, exchanged, used, etc.

In addition, a digital asset has an additional property –

information on a value is formed by the owner of this value. It should

also be noted that an information resource in the context of the

definition of the term “digital asset” is deprived of such a characteristic

as the possibility of being copied an unlimited number of times. This

is due to the fact that in the distributed ledger, each such resource is

expressed in the form of a unique identifier, which ensures stable

conditions for the guaranteed conformity of a digital asset to a specific

entity. Thus, the following important conclusion can be reached: the

value of a digital asset lies in its uniqueness and credibility, which are

ensured by circulation of the digital asset in the distributed ledger.

Based on these characteristics, one can also designate the high

practical significance of the digital asset in the economic and legal

aspects.

One of the key properties of a digital asset is the ability to

circulate in the digital environment, rather than being copied during

transmission from one email address (storage, wallet, cell) to another.

A circulating object (digital asset) must necessarily have not only its

own circulation environment, but also clearly defined rules and

conditions for its existence in such an environment. To be able to

establish and monitor the implementation of such rules and conditions,

a reliable digital scalable and decentralized ecosystem is needed,

which will allow all participants to be confident that the uniqueness of

information resources will be preserved. That is why the component

“distributed ledger” occupies an important place in the definition of a

digital asset.

The distributed data storage system of such ledgers is one of the

most technologically advanced. It provides the highest possible level

of confidence in the information due to the mandatory procedure of

verifying it for accuracy by all nodes of the distributed environment

through a certain method of building consensus. Thus, the problem of

“double-spending” is also solved. The information contained in such

a ledger cannot be deleted or modified, and the reliability and

mechanism of this storage method allow creating records on the right

to values (assets) in the ledger. This is a necessary procedure in the

process of creating a digital asset, which, in turn, requires recording

information about the assessment (audit) and other data of the owner

of the digitized value in the ledger, including his/her property right to

a value. To understand the nature of a digital asset, it is important to

take into account the mandatory conditions: the possibility of

confirming that a digital asset belongs to a particular entity, as well as

the absence of any means of creating a copy of the same digital asset,

including by duplicating its unique identifier. Such conditions can

only be provided by the distributed ledger technology, which allows

guaranteeing the uniqueness of digital asset identifiers and assigning

specific identifiers to specific objects.

Thus, it can be concluded that the ability to circulate in the

distributed ledger for a digital asset is one of the determining ones.

Therefore, the distributed ledger as an information storage system is

the only possible environment for the existence and circulation of

digital assets, which are the numerical expression of the rights and

obligations of the owner of the real asset in the space of the distributed

ledger.

Value component in the context of the definition of the term

“digital asset” is represented in the field of tangible and intangible

assets by the “value” component.

Value is relative worth, utility, or importance, which can also

be expressed by different measurement units depending on the area of

practical use of such a value and the ecosystem in which such a value

exists.

The phrase “derivative of the right to a value” is used in the

definition of the term “digital asset”, since, in essence, digital asset is

a kind of a guaranteed right to claim a certain value inherent in this

digital asset. In other words, a digital asset serves as a digital display

of value. Thus, it is the “value” component that is used in the definition

of “digital asset”, since it conveys most widely and comprehensively

the meaning laid down in the definition.

You can read the full text of the paper: Kud A. A. Substantiation

of the Term “Digital Asset”: Economic and Legal Aspects.

International Journal of Education and Science. 2019. Vol. 2. No. 1.

P. 41–52. doi: 10.26697/ijes.2019.1.06. http://culturehealth.org/ijes_

archive/IJES,Vol.2,No1,2019_(6).pdf.

After the theoretical substantiation of the term “digital asset”, it

is extremely important for practice to determine the criteria and

characteristics of a blockchain token as a digital asset.

1.4. Characteristics of the Criteria and Indicators of a

Blockchain Token’s Correspondence to a Digital Asset

In the scientific literature and in articles of information and

analytical nature, you can find a lot of publications that highlight the

advantages of a particular type of cryptocurrency based on certain

characteristics. These publications are quite different in purpose and

content, but they have one thing in common: such publications are

often dedicated to the consideration and popularization of a specific

cryptocurrency. At the same time, the criteria and indicators that

should form the basis of the complex characteristics of a blockchain

token are not given.

We have analyzed numerous scientific publications and made

the following conclusion on their basis: the main problem in the

theoretical and practical field is that the industry of information

technology and economy is developing rapidly, and therefore, the

proposed criteria for determining the characteristics of a blockchain

token should be unified and justified in accordance with existing

international economic and legal standards.

It is obvious that in the absence of criteria (a complex or a

system of criteria) it is impossible to assess an object, identify

problems, determine the degree of its perfection, predict further

development, etc.

Considering this, in order to determine the criteria for a

blockchain token as a digital asset, it is necessary to establish the most

significant features that will allow characterizing the indicators to

determine whether a certain object corresponds to a digital asset.

The conducted research allowed us to determine the criteria for

the optimal characterization of a blockchain token as a digital asset.

The optimality is based on a typology of criteria: global – local;

external – internal; maximizing result – minimizing costs.

A multi-criteria analysis of the mentioned above complex of

definitions and optimal choice of criteria allowed us to solve the

problem of determining the criteria and characteristics of a blockchain

token as a digital asset.

The methodology for diagnosing whether a blockchain token

corresponds to a digital asset is based on the principle of equivalence

of categories.

The use of a blockchain token is determined by the need to

observe the mandatory compliance of its characteristics with

fundamental and exhaustive categories for a digital asset in the

economic and legal aspects, which correspond to the components that

produce the definition of a digital asset.

It should be noted that, according to the principle of equivalence

of categories, they are all equal in importance for an objective

determination of the correspondence of a blockchain token to a digital

asset. This means that if a blockchain token does not correspond to at

least one of the categories, then such a blockchain token cannot be

considered as a digital asset.

These categories include the following:

1. Definition of a digital asset as an information resource;

2. Determination of the nature of the digital asset as a derivative

of the right to a value;

3. Circulation of a digital asset in the distributed ledger;

4. Circulation of a digital asset in the form of a unique identifier.

The principle of equivalence of categories is established by:

1) determining a list of criteria that are sufficient for diagnosing

a blockchain token for correspondence to a digital asset;

2) sufficiency of the criteria due to the differentiation of 9

digital asset criteria into four categories depending on the ratio of the

criteria to the categories of a digital asset:

 1st category: criteria No. 1; 2; 3; 4;

 2nd category: criteria No. 5; 6;

 3rd category: criteria No. 7; 8;

 4th category: criterion No. 9;

3) two questions correspond to each criterion, the answers to

these questions allow determining whether a blockchain token has an

indicator, which in turn, allows determining whether certain

characteristics of a blockchain token correspond to this criterion;

4) assignment of criteria of equal importance to each of the

categories.

Thus, the degree of compliance of the characteristics of a

blockchain token with each category is a necessary condition for

determining the degree of correspondence of a blockchain token to a

digital asset.

Let us consider the criteria in detail.

1. Uniqueness. This criterion indicates the uniqueness of a

blockchain token and is characterized by the following indicator: the

existence of a document that records the issue date of a blockchain

token and determines the number of a blockchain token.

2. Identifiability. This criterion points out the creator of the

document and is characterized by the following indicators: the

existence of an indication of а blockchain token’s creator in the

document; the ability to confirm the legal claim of the creator of a

blockchain token in relation to a value.

3. Regulability. This criterion indicates that the process for

implementing legal claim with respect to a blockchain token is

regulated and is characterized by the following indicator: the existence

of a document that establishes the rules and conditions for using a

blockchain token.

4. Sessionality. This criterion is determined by the period

during which a blockchain token exists and is characterized by the

following indicator: the existence of a document that sets the

circulation period of a blockchain token and determines an event that

affects the validity of the blockchain token.

5. Derivativeness. This criterion indicates the nature of a

blockchain token derivative of the right to a value and is revealed

through the following indicator: whether a blockchain token provides

its holder with access to the complex of rights and obligations of the

owner of value; whether a blockchain token provides its owner with

the right to demand the fulfillment of a set of rights and obligations.

6. Verifiability. This criterion indicates the existence of reliable

evidence of the owner’s property rights to the value and is

characterized by the following indicators: the existence of a document

that contains information that reliably indicates the owner’s property

right to the value, from which the blockchain token derives; the

existence of a document that contains reliable information about the

scope of the rights of the value’s owner and third parties to the value,

from which the blockchain token derives.

7. Transparency. This criterion indicates the possibility of

analyzing the history of transactions with a blockchain token based on

existing accounting methods and is characterized by the following

indicators: whether information on the parties to the transaction is

displayed in the history of transactions with a blockchain token;

transaction accounting is based on previous transactions (UTXO) or

on the balance accounting of a blockchain token.

8. Decentralization. This criterion indicates the independence

of the environment, in which the blockchain token circulates, from

centralized decision-making and is characterized by the following

indicators: the existence of documented mechanisms for management

and development of the blockchain token circulation environment by

the community; maintenance of the infrastructure of the blockchain

token circulation environment by the community.

9. Accountability. This criterion indicates the recording of the

transfer of a certain number of blockchain tokens from one identified

party to another and is characterized by the following indicators: the

ability to account the transfer of the number of blockchain tokens

between identified parties in a transaction; the ability to record the

actions of the parties through a transaction identifier.

It should be noted that today the given number of criteria is

optimal and sufficient to obtain reliable indicators for determining the

characteristics of a blockchain token as a digital asset in order to

comply with existing international legal standards.

SECTION 2

ORGANIZING AND CONDUCTING THE RESEARCH OF

CHARACTERISTICS OF A BLOCKCHAIN TOKEN

2.1. Research of Characteristics of a Blockchain Token

Blockchain tokens can be studied using various methods: from

a simple observation of its exchange value to complex mathematical

calculations and construction of theoretical models.

The research of characteristics of any blockchain token implies

the use of a special questionnaire developed by us, which does not

require extensive knowledge in the field of information and/or digital

economy and can be completed both individually and collectively. To

conduct the research, the respondent needs to fill in a special form with

a list of questions. After completing the research, i.e. after filling in all

the required fields, the respondent gets an opportunity to analyze the

obtained results using Table 2.

The questionnaire has been developed according to specific

criteria and indicators of a blockchain token, it contains 18 questions,

the answers to which allow specifying the characteristics of a

blockchain token. The respondent must choose only one out of three

answers (A, B, C), which are graded in accordance with the scale in

Table 2.

The information gathered using this methodology allows

determining how much a blockchain token corresponds to a digital

asset and also characterizing a blockchain token as:

- unique/non-unique;

- identifiable/non-identifiable;

- regulated/non-regulated;

- sessional/non-sessional;

- derivative/non-derivative;

- verifiable/non-verifiable;

- transparent/non-transparent;

- decentralized/centralized;

- accountable/non-accountable.

In order to get the most precise results, the questions are

arranged in a way that they specify every criterion twice. The analysis

of the correspondence of answers to each criterion allows gathering

information about the randomness of answers and/or mistakes.

QUESTIONNAIRE

Instruction: “You have an opportunity to diagnose a

blockchain token (hereinafter referred to as “BT”). In order to do that,

you need to answer 18 questions, which characterize it. In a special

form, fill in the information about yourself and answer every question

by choosing one of the proposed answers: А – Yes; B – Don’t know;

C – No.

Write the selected answer next to each question in a special

column made for that purpose. There is no time limit for answering”.

_________ __________________ _____________________

Date Surname and initials Higher education degree

________________________ _________________________

Specialty Work experience (years)

Table 2

Questions for Testing the Characteristics of a Blockchain Token

No.

Question

Answer

Is there a document that registers the issue date

of the BT?

Is the creator of the BT specified directly in the

document?

Is there a document that establishes the terms of

using the BT?

Is there a document that sets the BT’s

circulation period?

Does the BT provide its owner with access to a

set of rights and obligations of the value’s

owner?