What are digital assets?

A digital asset is anything that exists in a digital format. In the past, the term ‘digital assets’ was mainly used to refer to media formats such as images, video files, and documents that were traditionally physical assets and then went on to be created, stored, and shared in a digital form.

Following the introduction of blockchain technology, ‘digital assets’ found new meaning and expanded to include investable assets like cryptocurrencies, NFTs, tokens, stablecoins, and security tokens. The widespread adoption of blockchain-based digital assets has shifted focus from digital media files to assets built on a distributed ledger.

These digital assets can be owned, transferred, or used as a currency by individuals. Additionally, it can be used to store intangible assets like contract documents, video, or computerised artwork. Physical assets like real estate can be tokenised to create digital assets for trading.

The use of digital assets in the financial services industry has skyrocketed since the emergence of investable digital assets.

Digital assets and blockchain

Blockchain technology is used to enable digital assets to be owned and traded by individuals. This technology is essential for digital assets as blockchains allow data to be recorded, stored, and shared on a peer-to-peer network. It is a decentralised ledger, where data is shared across multiple computer systems, and new transactions can be recorded, but existing ones cannot be changed. When new information is added to the blockchain, a digital asset is created (or minted). Making entries on the blockchain allows users to exchange or create new digital assets.

Types of digital assets

  1. Cryptocurrencies

They are the most popular form of digital assets. It is a medium of exchange stored digitally on the blockchain and can be used for investment or payment. Some examples of cryptocurrencies are Bitcoin and Ethereum. 

  1. Stablecoins

Stablecoins were designed with the aim of having price stability. Therefore their value is linked to commodities, fiat currencies, or other crypto assets. They can be used for payments, foreign exchange, or cross-border payments and transfers. 

  1. NFTs (Non-fungible tokens)

This token is used to represent ownership of a unique digital asset, and it helps certify that the holder owns that specific digital asset. NFTs are used to represent various items like artwork, media recordings, virtual land, games, avatars, and so on.

  1. Central bank digital currencies (CBDCs)

It is a currency that is issued by a nation’s central bank and is linked to its fiat currency. They are useful for payments as well as cross-border payments and transfers. CBDCs are not a currency that is issued by all nations.  

  1. Tokens

A token is a digital representation of an asset that resides on an existing blockchain. The token can be a unit of cryptocurrency, utility, or access. Almost any asset, virtual or physical, can be represented as a digital token.

  1. Security tokens 

Security tokens are the digital form of traditional investment options like stocks and bonds. Issuing, trading, and settling these investments are all carried out digitally on the blockchain.

Why are digital assets important?

There are numerous reasons that make digital assets important in today’s world; however, some of the most notable ones are:

  • Decentralised finance (DeFi)

Digital assets are based on the concept of a decentralised digital ledger, where data regarding ownership and exchange of assets is recorded. It is the opposite of traditional methods of that require transactions to be stored on a private ledger overlooked by a central party. This shift towards decentralised finance (DeFi) allows users to freely trade digital assets while eliminating the need for traditional financial institutions.    

  • Transparency 

As digital asset transactions are stored on a decentralised ledger, they can be viewed by anyone. This transparency offered by digital assets is important as it builds trust among users by allowing them to view and verify transactions on the blockchain while maintaining privacy.  

  • Security

Digital asset transactions, once stored on the blockchain, cannot be altered or deleted, making them very secure.

How do digital assets work? 

Digital assets are created on the blockchain (in most cases), where they are recorded and stored. This record on the ledger contains the public and private keys for the digital asset, similar to the concept of having an email address and password. The public key allows you to receive digital assets, whereas the private key allows you to access your digital assets if you wish to send or sell them.

Wallets, also commonly known as crypto wallets or cryptocurrency wallets, are required to help securely store your keys, giving only you access to your digital assets. It provides a convenient place to view your digital assets. It is important to keep your private key safe as it is used to prove ownership of the digital asset if and when you decide to do something with it.

Digital assets like digital coins or NFTs have a unique address and can be tracked as they are stored on a blockchain. The transactions on the network are verified and stored in groups called ‘blocks’, which contain the entire history of ownership of the digital asset since its creation. This creates a secure and trusted network where users can participate. 

Conclusion

The rise of blockchain-based digital assets is changing the way we invest in assets. These digital assets include Cryptocurrencies, stablecoins, NFT, CBDCs, tokens, and security tokens. The numerous benefits offered by blockchain and digital assets are capturing an evergrowing number of users. Moreover, the availability of more information regarding these technologies has acted as a catalyst for their adoption. This is only the beginning of the digital revolution, and learning and expanding your knowledge about digital assets is the only way to keep up with it.

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If you are interested in discovering how blockchain is implemented in the industry, these are some of the best resources that can help you out!

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