Section 1.2
What are you actually looking at?
A trading screen or wallet can display several assets in the same format. Similar presentation does not make the underlying positions equivalent.
Suppose an investor allocates USD 10,000 to each of the following:
| Position | What the investor holds | Essential next question |
|---|---|---|
| Native BTC in a self-controlled wallet | A position recorded by the Bitcoin network under spending conditions the investor controls | Can the investor secure and recover the signing authority? |
| BTC balance at an exchange | A customer position on the exchange's records | What right does the customer have, and can the exchange deliver the BTC? |
| A dollar-referenced stablecoin | A token designed to maintain a stated reference value | Who can redeem it, and what supports the value? |
| A tokenised fund interest | A token connected to rights in an external fund arrangement | How does the token establish or transfer the legally recognised interest? |
| A governance token | An application-defined asset with specified powers | What can holders actually decide, and how does use benefit them? |
The positions may all be transferable or may all rise and fall in dollar value. They still require different analysis.
A useful classification separates six objects:
| Object | Working meaning | Main economic question |
|---|---|---|
| Network or protocol | Rules and infrastructure for maintaining state and processing activity | What service does the infrastructure provide? |
| Native asset | An asset incorporated into the protocol, such as BTC or ETH | What creates demand, and how does supply change? |
| Application | Software operating through a network, often using smart contracts | What does it do, and who controls it? |
| Application token | An asset defined by an application | What rights, functions or exposures attach to this token? |
| Tokenised external claim | A digital representation linked to an asset or obligation outside the network | How does the token connect to the underlying legal and economic rights? |
| Intermediary position | A balance or entitlement recorded by an exchange, broker or custodian | What must the intermediary do for the customer? |
A smart contract is a program executed under a blockchain's rules. It can implement an asset, an exchange or another application. Its name does not establish that it is a complete or legally enforceable contract.1Ethereum.org, Introduction to smart contracts. Source for program execution and the limits of the term “smart contract”.Open sourceSee in source list
Ethereum illustrates the layers. Ethereum is a programmable network, ETH is its native asset, and other tokens and applications operate through smart contracts on that network. A company building one of those applications is another object again.2Ethereum.org, What is Ethereum?. Source for the distinction between the programmable network and ETH.Open sourceSee in source list
For each position, separate three questions:
1. Technical control: who can cause the recorded position to change?
2. Economic exposure: what determines gains, losses or cash flows?
3. Legal position: what rights exist against which parties?
Control of a signing key can be practically decisive without resolving every legal ownership question. Conversely, a customer can have a legal claim while depending on a custodian to exercise the technical control. Tokenisation can change how an asset is represented and processed without changing the issuer's underlying obligation.3NIST, Blockchain Technology Overview, NISTIR 8202, 2018. Source for blockchain fundamentals, permission models and applicability considerations.Open sourceSee in source list4BIS and CPMI, Tokenisation in the context of money and other assets: concepts and implications for central banks, 2024. Source for tokenisation concepts and the continuing relevance of underlying financial arrangements.Open sourceSee in source list