During the past years, the trend of investing in "Digital Assets" has gained popularity. It is believed that digital assets can generate high returns in a short time. But because it is a new asset it is necessary to understand and be careful before investing.
Digital currencies are assets you can buy, sell, and hold online, but typically can’t physically see or touch. They can be in the form of the digital currency itself, or they may be the underlying works that are traded using blockchain technology. Either way, their value, like all assets, comes from a claim to ownership.
Digital assets use public ledgers over the internet to prove ownership. They use cryptography, peer-to-peer networks, and distributed ledger technology (DLT) – such as blockchain – to create, verify and secure transactions. They can have different functions and characteristics: they may be used as a medium of exchange; a way to store value; or for other business purposes. Digital assets generally operate independently of a central bank, central authority, or government.
A distributed ledger is a type of database that stores electronic records shared and replicated across many locations and maintained by members of this decentralized network. Each new transaction must be agreed upon by all members of the network before it is added to the ledger.
Blockchain is one type of distributed ledger that arranges the data in chunks and chains them together. This unique way of structuring data gives blockchain transactions additional security as they are irreversible. Blockchains can be used to store many types of data but have recently become popular for their use of storing virtual currency transaction history.
Some of the more common types of digital assets you may encounter are:
- Virtual currency (or cryptocurrency);
- Utility Tokens;
- Non-Fungible Tokens.
is likely the most well-known type of digital asset. Virtual currency is a medium of exchange. It can be used:
- to exchange for products or services, like fiat currency (such as US dollars);
- for speculative purposes, such as trading on a digital asset trading platform;
- as a store of value.
It was created as an alternative to fiat money. Virtual currencies have no inherent value; their perceived value is based largely on supply and demand in the market. Examples include Bitcoin, Ether, Ripple, and Litecoin.
Stablecoins such as Tether and Сircle also fall into this category. In general terms, a stablecoin is a type of virtual currency that has stable price characteristics. Most stablecoins are pegged against the US dollar, and they help investors retain their trading profits without the need to withdraw into fiat currency and hedge against market volatility.
Tokens A utility token uses a distributed ledger or blockchain platform to provide access rights to a specific product or service (potentially one that is still in development) or to be used to purchase specific products or services. The provider of the products or services typically issues the tokens, which can only be used within the issuer’s network.
Non-fungible tokens (NFTs) are tokens that live on a distributed ledger or blockchain, which records the owner of this particular NFT. Non-fungible means these tokens cannot be exchanged for one another; each one is unique. NFTs are relatively new, even for virtual currencies, and the regulatory scheme and marketplace for NFTs are rapidly evolving.
Digital assets can be quicker to issue than paper-based or physical assets. Their electronic-only format can also streamline the transaction process, reducing administrative and physical storage costs. Digital Assets clearly have a great future. Our Congrats to you! Now you know a little bit more about them and are ready to take a step forward;)