The trend at the Center of Global
Regulatory Movements: Tokens

With the introduction and widespread use of blockchain when we say digital assets, a great variety of assets such as tokens, stablecoins, and central bank digital currencies (CBDC) are coming into mind. Many companies have become in search of new business and growth opportunities in the face of these developments in digital assets. On the other hand, the rapid participation of digital assets into business life without an absolute legal basis has caused new risks for consumers, investors, and financial systems.

Tokens which are computer codes, created and managed with blockchain technology, and the unknown legal regime that will be applied to these, have become one of the most debated issues in the blockchain ecosystem. After all, it is an undeniable fact that crypto-asset markets have a significant market share despite all the confusion.

Various types of tokens can be categorized differently from country to country and from person to person. This variety makes it difficult to determine the legal nature of tokens. In the European Union member states, the United States, and the UK, looking for answers to the questions "Where do tokens take a place in concepts such as tax, accounting, property, intellectual property" is gathered speed, in addition to questions such as what the token is and what purposes it serves. Similarly, international organizations such as the European Union, OECD, and FATF have already taken action to regulate crypto assets and crypto asset markets.

Identifying Tokens

The definition of crypto assets is included in MiCA (Regulation on Markets in Crypto Assets), which has been on the agenda in the European Union since 2020 and is expected to come into force in 2024 and aims to regulate crypto asset markets. According to this, the crypto asset means; a digital representation of value or rights that can be transferred and stored electronically using distributed ledger technology or similar technology.

Generally, in many countries, the definition of a token is made by making some additions to existing laws rather than specific laws regulating token transactions. In Switzerland, changes were made in the Law of Obligations and Germany in the Banking Legislation. In Turkey, with the “Regulation on The Disuse of Crypto Assets In Payments”, which came into force on 30.04.2021, crypto asset defines as intangible assets that are created virtually using distributed ledger or similar technologies and are distributed over digital networks, and that are not qualified as fiat money, registered money, electronic money, payment instrument, security or any other capital markets instrument.

Types of Tokens

Each token has a different purpose or function. Tokens are classified according to their economic functions and purposes, such as “utility tokens”, “security tokens”, and “payment tokens”. In addition to currency or payment tokens such as Bitcoin, Ether, and Solana, there are also utility tokens that provide access to digital products and services. Other than these, there is a third category – almost a bag category – which includes “security”, "assets" or “investment” tokens.

Some that focus on stablecoins classified crypto assets as, "unbacked crypto assets" (Bitcoin, Ether, etc.), "utility tokens" that provide access to a product or service, "security tokens" that provide rights such as a security, and stablecoins (Binance USD, USD Coin, etc.). Immediately, this should be noted that it is impossible to obtain a uniform categorization here because tokens with different specifications emerge every day, every minute.

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The Distinction Between Fungible and Non-Fungible Tokens

Another categorization has been made according to whether the token is fungible or not. This distinction confronted us, especially at the beginning of 2021, with the headlines regarding NFT (Non-Fungible Token) sales. In 2021, many digital or real-world assets, from tweets to artwork, from crypto cats to bags, have been converted to NFT and sold for astronomical prices. NFTs, which are some of the fundamental components of Web 3.0 has been translated into Turkish as "Qualified Intellectual Deeds" in the Blockchain Dictionary prepared by the Republic of Turkey Digital Transformation Office.

If an asset is exchangeable with another equivalent asset such as paper money, gold, or silver, it is considered "fungible". It is also the same for tokens. Cryptocurrencies such as Bitcoin, Ether, and Ripple are fungible tokens. 1 Bitcoin equals 1 Bitcoin and always will be. Also, Bitcoin is divisible. Bitcoin can be divided into smaller pieces (Satoshi).

Non-fungible assets are unique and non-substitutable assets. For example, immovable properties, collectible individual assets, and a uniquely designed ring are non-fungible. NFTs are also nun-fungible. In other words, it is not possible for an NFT to be equivalent to or exchanged with another NFT. In this context, the NFT of a digital artwork cannot be the same as the NFT of other digital artworks. Each NFT has a unique code and value. NFTs were and will attract this much attention because they offer the potential to create uniqueness in an environment where digital artworks and digital content can be reproduced i.e., copied infinitely.