What are Digital Assets? And Are They Right for You?
If you’ve spent any amount of time in the crypto community, you’ll know there are some phrases you can’t escape, and ”digital assets” is one of them. But what are digital assets? Hint: They’re more than just cryptocurrencies.
Common types of digital assets include cryptocurrencies, NFTs, and some more out-there items we might one day use in the metaverse—virtual land, anyone? Yet ask the average person what digital assets are and they probably wouldn’t be able to give you a straight answer.
In short, they’re virtual assets you can buy, sell, and hold online. But they’re also so much more. In this post, we’ll go deeper into the different types of digital assets out there and how they work.with. By the end, you’ll have a solid grip on digital assets and whether they can help achieve your financial goals. Let’s go!
What are digital assets?
If you can store something on a digital device and send it to others electronically, it already meets the most important part of the definition for being a digital asset. Another important criteria is that digital assets must be owned by the individual. For instance, the Google Chrome plugin on your computer is owned by Google and not you, meaning it doesn’t quite make the cut.
The “digital assets” umbrella was once used to describe just about anything that exists in a digital format, from an MP3 file of your favorite song to the powerpoint presentation you just made. However, the introduction of blockchain technology has meant the concept of ownership has evolved.
Anything stored on the blockchain is the property of the individual, because no centralized authority has control. Therefore, the term “digital assets” is increasingly applied above all in the context of cryptocurrencies. Yet this is far from the only application.
Types of digital assets
We’ve already said that the term “digital assets” usually refers to the blockchain world. Now, let’s go through the main categories you’ll come across.
The most well-known form of digital assets are cryptocurrencies. Whether these cryptocurrencies represent digital currencies (like bitcoin), tokens to be used on blockchains (like ethereum), or something else, they come under the brackets of digital assets.
Cryptocurrencies are stored on a public ledger on the blockchain, which keeps them decentralized—“nodes” (individual computers) within the network verify transactions, and the whole system works autonomously. Then, individuals store their cryptocurrencies in crypto wallets, and only the person with the private key (similar to a password) can access them. You can also transfer cryptocurrencies to other people by making payments between wallets and exchanges (as long as they’re compatible).
This ensures they meet the criteria of being a digital asset.
Non-fungible tokens (NFTs) are also stored on the blockchain, but unlike cryptocurrencies, they can represent many different digital items – including art, gaming, music, and more. This is possible due to smart contracts, which make it possible to verify the ownership and authenticity of a digital file as it’s transferred between different people.
As with cryptocurrencies, you can trade NFTs between different devices and people by making transfers between wallets. Again, they meet the criteria for being a digital asset perfectly.
Although the bulk of public attention on digital assets is focused on cryptocurrencies and NFTs, other uses are emerging. One of these areas is virtual land: Land parcels within virtual reality worlds in the “metaverse,” such as Sandbox and Decentraland.
Some people think these worlds will become the next iteration of the internet in the future and be a place where we can hang out with friends, play games, and maybe even attend work and school. So, the pieces of land in these universes could become increasingly valuable. It might sound far-fetched, but some pieces of virtual space are already selling for hundreds of thousands.
These pieces of virtual land are another example of digital assets, because individuals can own them, and they can be transferred between people through virtual wallets or exchanges.
Digital assets: Pros and cons
Now you know what digital assets are, you might be wondering if you should get involved. There are both benefits and disadvantages to this exciting new technology, so let’s run through both sides.
First of all, the positive stuff. You might not be able to see or touch digital assets like you would their physical counterparts—but that doesn’t stop them from being incredibly lucrative. Pieces of virtual land have gone for crazy money, a single bitcoin frequently passes the $50,000 mark, and NFTs have sold for millions. If you’re looking to invest in the future and make money, then the digital world could appeal.
Or, on the geekier side of things, you could see digital assets as being part of the decentralization revolution. If you want part of a movement that aims to liberate people so they don’t have to rely on central authorities, then going digital could be for you. Why invest in stocks of companies like Meta and Google, which are using our data to make profits, when you could be part of a decentralized project that protects your identity and autonomy?
Digital assets are also highly secure, and pride themselves on developing cutting-edge technology to maximize that security.
Although there can be good money in the likes of crypto, investing in them can be risky. The crypto crash of 2022 demonstrates just how volatile the blockchain world can be – whether you’re looking to invest in cryptocurrencies or NFTs. Nobody knows what’s going to happen, with critics believing it’s all just a bubble that could pop at any time. While this is a negative view, it’s true that its value partly hinges on public opinion. If we stop believing they’re valuable, they’ll ultimately become less valuable.
This is especially true of newer applications like virtual land.
There’s also the possibility of fraud and other technology-related issues happening. It can be overwhelming to navigate his world as a beginner if you have limited technical knowledge.
However, you can avoid the worst of these issues by sticking to the old mantra: “Only invest what you can afford to lose.”
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