Digital assets are revolutionising the Web and can be considered the new frontier in finance. These assets are a digital representation of value that exists in several forms, including cryptocurrencies, NFTs, stablecoins, digital bonds, and tokens. Understanding these assets can be confusing, so we’ve broken them down by definition and features and compared them.
Types of digital assets and their main features
Based on structure, characteristics and usage, six types of digital assets exist:
- Cryptocurrencies
- NFTs
- Stablecoins
- CBDCs
- Digital Bonds
- Tokens
- Cryptocurrencies
Cryptocurrencies are digital forms of money that work independently of any central authority like a bank or government. A public ledger called the blockchain records and cryptographically secures these transactions. Since these currencies run on a distributed network, there is no central authority to oversee or issue them, making them immune to government intervention. These currencies can be mined, bought via cryptocurrency exchanges or earned as rewards on the blockchain network. These currencies are ideal for making payments or investing in them. A few examples of cryptocurrencies are Ethereum, Bitcoin, Litecoin.
Main features of cryptocurrencies:
- Decentralised
- Anonymous
- Volatile
- Secure
- NFTs (Non-fungible Tokens)
NFTs or non-fungible tokens are unique digital content linked to the blockchain, similar to technology implemented for cryptocurrencies. Non-fungible tokens are one-of-kind and cannot be replaced or exchanged with another identical asset of the same value. These tokens are certificates of ownership for digital assets, allowing for authentication to prove the asset is genuine. Artists usually use NFTs to sell their digital art and media recordings as they provide ownership rights and enable creators to protect their work.
Main features of NFTs:
- Defines ownership rights
- Unique
- Irreplaceable
- Extensible (can be combined with each other to create a new NFT)
- Stablecoins
Stablecoins are digital currencies whose value is tied to another currency, commodity, or financial instrument to minimise price volatility and maintain stability over time. This makes them a less volatile alternative to conventional cryptocurrencies such as Bitcoin and Ethereum. Stablecoins are ideal for making cross-border payments and transfers at a lower fee. They also are a great optional payment method for products and services.
Main features of Stablecoins:
- Stable
- Transparent
- Decentralised
- CBDCs
Central Bank Digital Currency (CBDC) is a digital currency sanctioned by central banks and is linked to the value of the issuing nation’s official fiat currency. CBDCs are separate from decentralised cryptocurrencies like Bitcoin and Ethereum. These currencies are beneficial since they focus on providing faster and more efficient payments, increasing financial inclusion, and enhancing monetary policy tools for central banks. The Digital Yuan is a prominent example of a CBDC launched by the People’s Bank of China to increase the nation’s financial inclusion and stability.
Main features of CBDCs:
- Low transaction costs
- Speedy transactions
- Digital Bonds
A bond is a debt instrument issued by a borrower (such as a corporation or government) to raise capital, which is then lent to the borrower for a fixed period of time at a fixed interest rate. Digital bonds are similar to conventional bond offerings, with the same purpose of providing a low risk and low return on investment. However, in the case of digital bonds, the entire bond issuing, trading and settlement process is conducted online via the blockchain. This functionality allows for a streamlined and efficient process compared to traditional bonds, making it faster and cheaper.
Main features of Digital Bonds:
- Efficient
- Reliable
- Verifiable
- Tokens
Tokens or crypto tokens represent assets that have been tokenised on the blockchain of an existing cryptocurrency. Though these tokens share several similarities with cryptocurrencies, they must not be mistaken to be the same as tokens are a separate asset class. While users can trade tokens via a blockchain, they can also be used to represent more traditional assets like real estate or art.
Main features of tokens:
- Permissionless
- Transparent
- Trustless
Digital assets compared based on – features, use cases and examples
Understanding the various types of digital assets and their key features is essential for individuals and organisations to leverage them for the best use case. As the blockchain industry accelerates and matures, the number of existing digital assets will only continue to grow, opening up opportunities for better ways for enterprises to create value, interact and run operations.
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