Friday, June 14, 2024
HomeAllUnderstanding Cryptocurrencies and Other Digital Assets

Understanding Cryptocurrencies and Other Digital Assets

Blockchain is the technology behind digital assets such as cryptocurrencies. A blockchain is a way of recording secure information on a peer-to-peer network. New entries can be added to this shared database, but they cannot be removed or altered. Digital assets are created when information is added to a particular blockchain. Users can buy, sell, or otherwise obtain these digital assets or create new ones. While many would have termed them an emerging investment option, they are here to stay.

Cryptocurrency Assets

Crypto assets are the most common and widely known type of digital asset. They are used as a store of value or an exchange of value when used as a currency. They are stored on the blockchain and can be used to fund project payments, investments, and other users.

Stablecoins are a subset of cryptocurrencies, and they are designed to have a stable price. That said, stablecoins are still volatile with price hikes and dips all the time which makes them not only a store or exchange of value but also an investment option.

Cryptocurrency assets can be bought or sold on different exchanges. The two main types of exchanges are centralized and decentralized exchanges. Centralized exchanges are more popular but have some issues that decentralized exchanges like Alium Finance seek to solve.

Stablecoins and altcoins derived from them can be used for payments, foreign exchange, cross-border transfers and payments, and a lot more.

Non-fungible Token

A non-fungible token is a unique cryptographic token that cannot be substituted, copied, or subdivided. However, it can be exchanged for other crypto assets and fiat currency.

Non-fungible tokens (NFTs) are typically used to prove ownership of unique digital items including art, government IDs, or other specific units.

The use of NFTs has been shown to make selling, buying, and trading digital assets easier while reducing fraud.

Apart from the purchase of, or exchange with, other digital currencies, NFTs can also be used to:

  • Track inventory through the tokenization of a supply chain
  • Prove ownership of digital assets such as virtual land, games, and avatars
  • Prove one’s identity so one can gain access to a virtual or digital space

Although they have been misused, misunderstood, and become less trusted over the past few years, NFTs have massive potential that has been left unexplored due to how they were exploited.

Security Tokens

These are digital assets that meet the definition of and perform the same as other securities. These include securities like stocks, bonds, and other financial instruments. They can be used for the tokenization of real world assets, bonds, and stocks (equity).

Central Bank Digital Currencies (CBDCs)

Central bank digital currencies (CBDCs) are a somewhat new and novel idea as they represent a nation’s fiat currency. They are backed by a central bank and have been used in countries like Kazakhstan. Very few countries have issued CBDCs and their poor performance points to the likelihood of few countries doing so.

These are the different types of digital assets that currently exist. They are mined (minted), created, and used differently depending on the reason for their creation.