Definition Of Digital Commodity

On this webpage, we will be discussing the Definition Of Digital Commodity. Comprehension Of Crypto Commodities. Digital commodities, Bitcoin, and Money. The Ownership And Utilization of Digital Commodities. Information On Digital Commodities and Bitcoins.

Definition Of Digital Commodity

A digital commodity as the name implies is a product that exists in a digital form as opposed to being physical. Most cryptocurrencies are examples of digital commodities. A digital commodity sees as the use of technology to transform some elements of the commodity trading chain into something digital. These digital commodities have regulations governing them such as the BitLicense of New York. In the US, the Digital Commodity Exchange Act 2020 sign to regulate the activities of trading platforms.

Since cryptocurrencies like Bitcoin are commodities, they use the foundations for derivatives. A derivative is a contract between parties that value from an agreed-upon underlying financial asset. For instance, a trader can decide to enter into a derivatives contract that allows them to trade an amount of cryptocurrency at a certain date or value.

Interestingly, digital commodity trading goes beyond trading digital commodities like cryptocurrencies to trading real-life assets like oil and gas. In this article, we are concerned with digital commodities as regards cryptocurrencies.

The concept of a digital commodity leads us to another concept called a “Crypto Commodity”.

Comprehension Of Crypto Commodities

A Crypto Commodity can define as the digital representation of a tradeable asset like a commodity. Or contract representation on the blockchain network via exclusive tokens.

With the emergence of Bitcoin in 2008 and its continued evolution. The world soon came to accept it and its fame increases due to its decentralized nature and ease of making payments. Technology experts soon came to the understanding that blockchain networks could do more than basic online payments. And this birthed Ethereum, a smart contract-based crypto commodity system. Ethereum with its virtual currency token (ETH), provides increased functionality than Bitcoin. With its users being able to create their digital tokens that are easily tradeable and have valuations free from ETH.

Exclusive tokens use the crypto commodity trading space could use to represent either real-world or virtual assets. For instance, a user could pay to watch an online blockchain-based media content and pay another token to bet online. The different types of tokens could use for various purposes.

Definition Of Digital Commodity

The rules governing trading with these assets implements codes that are programs in the form of smart contracts and decentralized apps. NEO and QTUM are other examples of platforms that support crypto-commodity trading.

Many cryptocurrencies exchanges have digital tokens which use to pay some expenses of using the platform. The tokens can also use to represent real-world commodities like oil and electricity. The Digix Gold Token (DGX), is a digitally transferrable form of gold. Has its token standing as one gram of gold duly backed by actual gold bars in a secure vault. But unlike regular gold, the tokens are divisible, weightless, and almost impossible to steal.

Since both Bitcoin and Ether considers to be commodities by authorities at the Securities and Exchanges. Commission and Commodity Futures Trading Commission. They can freely trade on cryptocurrency exchanges and traditional asset markets. As opposed to securities that closely monitor the government of the nations they are trade-in.

Digital commodities, Bitcoin, and Money

Commodities are generally defined be a result of human labor for profit. A commodity could either have physical forms like a vehicle or be intangible like patents. They could also be immaterial and based on this definition, a digital commodity can define as a commodity that exists only in electronic form.

It argues that since the value regards to be the feature of labor that produces commodities. Bitcoin as a digital commodity shouldn’t perceive as a value but rather value-add as it is a commodity that is trading and not money in itself.  As commodities earn profit for those people who deal in them, so does Bitcoin. But rather than earn money the normal way through sales. With Bitcoin, profit earns from its production and trading.

The concept of value-add comes into play because. In the common process of commodity production, an amount of labor adds at every stage of production which is the value it adds. But since Bitcoin doesn’t require any new physical living labor to reproduce it. It shouldn’t argue that it has value-add but rather value. It only requires computational power and electricity with practically no direct human labour.

To determine if a commodity is digital or not, the value and use-value need to consider. The use-value determines the usefulness of the commodity to the buyer. While the quantity of value determines the social require amount of labor in need directly or indirectly to reproduce the commodity. Based on the available technical know-how.

Definition Of Digital Commodity

The quantity of value derives from two sources: Direct labor that creates new added value and indirect labor that transfers its value from the non-labor inputs to create the output. With the advent of the digital economy, technology allows for the reproduction of some commodities using computers and energy with practically no direct labour.

Although some minimal labor usage to run the equipment and other infrastructures needs. But no human labour requires to ensure reproduction. This means that commodities produced through this method use high nonlabor input. And low to no human labor will gradually transfer the value from the input to the output but will not create any new value.

Digital commodities are the most common example of this process since the bulk of the production process carries out by computers. Mostly automated with reproduction done with no direct human labour involved. While the use-value justifies with the benefit the commodity offers its user or even reproduces one offers its user. There is no value-add but merely value transfer and as such, no new wealth to create. In a situation where a fully automated commodity can increase the productivity of labor elsewhere. Even though it doesn’t necessarily create new value-added, it can indirectly do so by improving the productivity of direct human labor in another productive activity.

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But because to keep production, the automated commodity that doesn’t directly add a new value must earn a profit. The profit it earns will transfer as value-added from the total pool of value-added in the economy. For instance, if Google can fully automate the reproduction of a particular device. which is then used in the production stage by other companies because Google’s device is fully automated. That is, it doesn’t require human labour. It will increase the aggregate output in terms of quantity but it won’t increase the value of the total output. It will only increase value-added but not create a new value. The profits made from the reproduction of this device will then be transfers of value-added from the company that purchases it.

Bitcoin as a digital commodity falls under this category because it works in a comparable way. It is because it demands large use of computational power and electricity with virtually no use of direct human labour. Bitcoin doesn’t increase the new value-added because through the mining. And difficult verification of transactions in the blockchain network. They transfer value from the non-labor inputs like the computational power use while not creating any new value-added.  The only way Bitcoin could create new value-added is to make use of direct human labour.

Also, unlike actual money whose issuance creates a matching liability. Bitcoin which shouldn’t regard as money but as a digital commodity doesn’t have a matching liability. And can hold as a digital asset and then trade based on its use-value.

Definition Of Digital Commodity

Some of the many use-values of Bitcoin include the international transfer of payment, speculation, tax avoidance, online payments, and money laundering among others. Therefore, Bitcoin due to its lack of corresponding liability emanates as a digital asset that creates the illusion of new wealth. When in reality it merely redistributes the existing one.

The profit acquired from Bitcoin can be understood to come from two sectors: between and within. The between sector profit has to do with transfers of value-added. And other stocks of liquid wealth while the within sector involves the redistribution of these transfers to the most diligent miners and traders. Summarily, profits from Bitcoin represent the redistribution of both flows of value-added, within and between, and stock of liquid assets with no corresponding aggregate increase in them.

Interestingly, the whole idea of Bitcoin not creating value-added is disrupted if the methodology of the United Nations for the System of National Accounts(SNA) is followed. The SNA stands on the hypothesis that any marketable activity creates value-added. Both according to the Classical political economy, the hypothesis has a major problem in that it doesn’t differentiate between productive and unproductive activities. This is a problem because according to the labor theory of value, only productive activities create value while unproductive ones don’t. This means that profits from unproductive activities get are merely redistributed from productive activities. According to labor theory, Bitcoin trading and mining are unproductive activities and as such merely redistribute existing value-added.

The Ownership And Utilization of Digital Commodities

Ownership and use of commodities could either be rivalrous in terms of both or not rivalrous. It is rivalrous in terms of ownership when there are legal or non-legal restrictions as to who owns it. A commodity is rivalrous in terms of use if there are physical or non-physical restrictions as to who can use a unit of that product at the same moment. An example is the Bitcoin software which is free and open source.

In terms of ownership and use, Bitcoins can be regarded from two aspects: The Bitcoin Software and the Units of Bitcoin. The Bitcoin software is non-rivalrous in terms of ownership and use in that there are no legal or non-legal restrictions as to who owns it as well as no physical or non-physical restrictions as to who can use it at the same time. On the other hand, the units of Bitcoin are rivalrous both in use and ownership. It is important to note that digital commodities that earn profits and are principally non-rivalrous both in ownership and use could become rivalrous through non-legal means. This rivalry is maintained via non-legal means void of third payment of monopoly rights.

Information On Digital Commodities and Bitcoins

The creation and reproduction of commodities that have no value have behaved possible with the improvement of the digital economy. These commodities are known as Information Commodities. Information commodities can be reproduced over and over again at zero reproduction cost. For instance, while it could take years for chemical formulae to be discovered, once it has been discovered, copies of them can be made infinitely without any marginal cost. While the drug that required the usage of the formula has little value, the formula which is the information commodity has no value since it can be reproduced without any labor time either directly or indirectly.

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Although a product of free open-source software, Bitcoin is not an information commodity that has zero value because its reproduction requires large expenses on computational power and electricity. However, it still shares two main features with information commodities in terms of rivalry in ownership and an artificially restricted supply. The restricted supply is important for digital commodities to be able to earn profit from their production and ownership.

Free freeware is a commodity because it is not produced for profit. Bitcoin becoming a commodity is because its supply is restricted by its software in three ways.

  1. Software is hardcoded to keep a strict upper bound on the total supply
  2. It reduces the rate at which new Bitcoins can be mined as time goes by
  3. Internally adjusts the difficulty of mining new Bitcoins as a new mine server or leaving the blockchain.

In terms of rivalry, while they are both nonrivalry in ownership, the Bitcoin blockchain enforces intellectual property rights without the need for a legal apparatus that information commodities cannot achieve without legal backing.

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This feature of blockchain makes it possible for new digital commodities to be marketed via the blockchain. With their private ownership being automatically and securely confirmed by the blockchain itself. An example of such a new digital commodity is NFTs (Non-fungible Tokens). The institutionalization of private property within the digital domain. And without state enforcement has opened the way for the rapid growth of NFTs and other virtual assets.

The two main components of NFTs that allows for this are the underlying asset and the registration. The underlying asset could be a wide range of both digital and non-digital assets ranging from memes to industrial equipment while the registration involves the registry on the blockchain which confirms the authenticity, uniqueness, and proprietorship of the underlying asset. As it’s the case with any other digital or non-digital commodity, the value of the underlying asset and registry determine by the direct and indirect labor necessary to reproduce them.

Due to its sensitive nature, Bitcoin fails to meet the standards of being considered money. It is not a stable store of value due to the instability associated with its exchange rate against other currencies and is subject to appreciation or depreciation. Nor is it an efficient medium of exchange because it can only process 4.6 transactions per second on average as opposed to the widely used Visa which processes about 1700 transactions per second.

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 Asides from being considerably slow, Bitcoin makes use of an extremely large amount of energy almost the same total energy consumption as a country. And finally, it is lacking general acceptance as a means of settling debts or paying for transactions. As well few places accept it or any other cryptocurrency as a means of payment. Also, because of its anonymous private key technology. Bitcoin has become a major tool for money laundering and other various forms of illegal financial activities.

Following the financial crisis of 2008, the world has become too liquid, a situation further worsened by negative interest rates as well as the loose monetary policies following the covid-19 outbreak. All these have led to Bitcoin becoming a very speculative digital commodity. Its usefulness as a speculative digital commodity depends on its ability to establish itself as a universal equivalent that represents abstract labor time.

Although Bitcoin itself seems to lack potential in terms of one day becoming money. The blockchain technology behind it has some great potential because it permits the automation and decentralization of many financial activities. Although difficult to predict, the permissionless and trustless features of the blockchain may have an effect on the finance world in the same way mp3 had on the music industry.

The Definition Of Digital Commodity. Comprehension Of Crypto Commodities. Digital commodities, Bitcoin, and Money. The Ownership And Utilization of Digital Commodities. Information On Digital Commodities and Bitcoins.

Lastly, here is a list of more interesting topics you might want to read:

  1. Blockchain Technology
  2. Defi
  3. NFTs
  4. DAOs
  5. Crypto
  6. Web 3.0
  7. Altcoin Tokenomics
  8. Metaverse
  9. Smart Contracts

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