At one time, the term asset had a limited definition and included traditional options such as bank term deposits, stocks, gold, and real estate, to name a few. However, with the passage of time and advances in technology, new investment options have developed that have expanded the concept of assets and transformed it into digital assets. Some examples of digital assets are cryptocurrencies and NFTs.
This innovative and technological investment class offers investors the necessary flexibility, transparency and ease of investment. However, the question remains: what are digital assets and why have they gained so much popularity in recent years?
What Are Digital Assets?
Initially, digital assets refer to all assets that can be stored electronically. For example, all media files, photographs, videos, documents, etc., can be stored and shared virtually digitally. The goal was to preserve and protect their value and to make them available when needed, such as by scanning documents and storing them virtually for future use.
The concept of digital assets changed completely in 2009 with the introduction of cryptocurrencies. Cryptocurrencies started a new revolution called blockchain, and with it the perspective of virtual digital assets changed from storing value to creating value.
How Do Digital Assets Work?
You now have an idea of what a digital asset is; in this article we will discuss it extensively in terms of investment paths for financial services.
From an investment perspective, any asset in digital form that can create or transfer value using tokenization based on blockchain technology is called a digital asset. Some very popular examples of digital assets are cryptocurrency systems such as Bitcoin, Ether, Tether, etc. It also includes other assets, such as NFT, tokenized real estate, and many others.
Digital assets are based on blockchain technology. Blockchain functions as a distributed ledger with a focus on decentralization for storing and tracking transactions related to virtual assets, such as Bitcoin.
Because digital assets function as valuable assets that can be bought and sold, a digital wallet is needed to enable this. An account can be opened on a cryptocurrency platform such as Mudrex to access the wallet and trade these assets.
Digital assets are usually secure, but to prevent fraudulent activities such as theft, an extra layer of security is added to the wallet by using public and private keys. These keys are a combination of numbers and letters that allow access to digital assets; both keys are required. If you lose them, access to your assets will be lost forever. While anyone can see what digital assets a wallet contains without sharing personal information, no one can know which wallet belongs to whom.
What Are the Different Types of Digital Assets?
We can divide the types of digital assets into two parts. The first is digital assets in a general sense, which we described in the section on what digital assets are. The second is the newer type of blockchain-based digital assets.
Some common types of digital assets are listed below.
- Audio files
- Brand logos
- Social media
Digital assets based on blockchain
- Non-fungible Tokens (NFTs)
- Different types of Tokens
What Are the Pros and Cons of Digital Assets?
Below are the primary advantages and disadvantages of digital assets.
Pros of digital assets
1. Anyone can invest and participate
One of the biggest advantages of digital assets is that anyone can participate and invest in them. If you want to buy NFTs, cryptocurrencies or even a piece of the iconic Taj Mahal, you can do so without any problem. With digital assets, the public can easily invest and even create new assets.
2. It is secured
Because digital assets are based on blockchain technology, they protect users’ data and offer them great security. All transactions for digital assets are recorded in a disrupted ledger. To add new transactions to this ledger, digital assets use different authorization schemes, such as proof-of-work and proof-of-participation. In short, the technology that supports virtual assets ensures their security.
3. Serves as an investment option
Digital assets are excellent investment opportunities that can help you diversify your portfolio. But before entering this asset class, you need to learn how to invest in it. The price of digital assets such as Bitcoin has skyrocketed since its inception, allowing investors to earn higher returns. However, the risk factor must also be considered.
Cons of digital assets
1. A thorough understanding is a must
Whether you want to create or invest in digital assets, you will need to have a thorough knowledge and understanding of the field. If creating digital assets is an area of interest for you, you must be technically proficient. To invest in digital assets, you must learn to read between the lines of market fluctuations and conduct fundamental and technical analysis so that your investment generates some return. You must also be aware of all the risks involved in investing in this asset class.
2. Mistakes cannot be reversed due to blockchain
Once you add a new data block to the system, even mistakes, if any, can not be reversed because blockchain transactions are irreversible.
3. Risk of scams and frauds
There is no doubt that blockchain makes digital assets secure. However, because transactions on blockchain are anonymous, this presents a fertile opportunity for fraudsters and scammers to find ways to steal and launder money. Although it is very difficult, it is possible.
What Are the Two Factors Influencing the Value of Digital Assets?
Two major factors influence the overall value of digital assets: i) The time and ability to produce digital assets and ii) The ability to reproduce digital assets.
1. Time and ability to produce
The effort and time required to create a digital asset has a significant impact on its value. It could be compared to a normal life experience, such as buying a handmade artwork versus a machine-made one. A handmade work of art requires a lot of time and effort, which is directly proportional to its sale value. The same logic applies to digital assets. The more skillful and laborious the creation of an asset, the higher its value.
For example, there are only two reasons why Bitcoin is worth so much. First, availability is limited, and second, it is very difficult to create new bitcoins, which becomes more and more difficult as time goes on.
2. Ability to reproduce
You know the value of Leonardo da Vinci’s painting in the Louvre, the Mona Lisa: it is a unique work, a one-of-a-kind piece. It directly contributes to its value. The more unique a digital asset is, the more valuable it is. Take, for example, the NFT of Jeff Kuhn’s 1986 painting, a rabbit. It sold for as much as $91 million. The more a digital asset cannot be reproduced or copied, the higher its value.
Examples of Digital Assets
We can divide digital assets into three main categories, as mentioned below. Each type of digital asset has a different utility and purpose.
1. Cryptocurrencies and NFTs
You may have heard of these two digital assets. In recent years, cryptocurrencies and NFTs have been all the rage. Cryptocurrencies are blockchain-based virtual currencies; Bitcoin, Ethereum and U.S. dollar currencies are some popular examples. Cryptocurrencies can be further classified into different types depending on the purpose for which they were created, such as payment tokens, utility tokens, exchange tokens, etc. To learn more about them, click here.
On the other hand, NFTs are digital forms of any unique art, photo or physical/digital object. NFTs are created to store the value of a physical/digital object in virtual form.
2. Asset-backed tokens
Asset-backed tokens are tied to physical assets. In other words, they are backed by a physical asset or commodity. Such physical assets can be gold, U.S. dollar commodities such as soybeans, and others. For example, a stablecoin is one such asset-backed token; its value is pegged to the U.S. dollar.
3. Tokenized commercial real estates
This digital asset is very interesting because it creates a digital version of commercial real estate ownership. It allows users to buy and sell property in a virtual space and benefit from price increases, just as in the real world. By tokenizing commercial real estate, it is possible to buy and sell any property in the world, even the pyramids of Giza and the Eiffel Tower.
Why Is DAM (Digital Assets Management) Important?
Now that we have discussed what digital assets are, their types, and their importance, let’s look at how DAM is critical to the management of this dynamic asset class.
But first the question is: What is digital asset management? It is the one-stop destination for individuals and companies in the industry to create, store, manage and distribute digital assets. It helps manage the entire lifecycle of digital assets, making the user’s job easier and more convenient. Think of it as a highly organized and labeled drawer in your wardrobe, with the only difference being that the DAM system is digital and is used for virtual assets.
Digital asset management saves users time by using metadata to categorize documents specifically, making them easier to find. Metadata are data labels used to identify other data; simply put, it is a label given to a set of data. It makes the process of using and distributing digital resources very smooth.
While the ability to use DAM may not be the best for individuals, it can be of great benefit to companies and start-ups dealing with digital assets.
Want to Invest in Digital Assets? What Should You Consider?
If reading about digital assets has piqued your interest in exploring this investment space, here are two key points to consider before trying to explore your options.
1. Research on risk and return
Of course, for everyone the main goal of investment is return. However, this is possible only if the chosen digital asset has this potential. Before investing money in a digital asset, proper research and thorough analysis should be done. There are also risks to consider before investing, such as regulatory risk, volatility, etc. Remember that there is nothing like doing your homework during the research part.
2. Diversify your portfolio
Never put all your money in one basket. This applies to any investment. If you are investing in digital assets to diversify your existing portfolio, then do so. But also use digital assets to diversify your portfolio. This means not investing all your money in one digital asset. You can invest in different types of cryptocurrencies, not just bitcoin. This reduces the overall risk of your portfolio.
These are the basics. Now let’s talk about how to buy these assets.
Buying digital assets is as simple as buying stocks. All you have to do is open an account on a cryptocurrency platform that allows you to trade your favorite digital assets. It asks for your personal and banking information, transfers the money to your wallet and buys the digital assets. That’s it.
If you are confused about which digital asset to buy, visit Mudrex’s cryptocurrency collection. The program categorizes all your needs and offers several available options, from NFT to Cryptos, all at your fingertips.
What Does the Future Hold for Digital Assets?
Digital assets have become very popular recently and are likely to expand further as countries and governments recognize their value. For example, the Indian government has already announced the launch of the digital rupee. According to a Statista report, total revenue from the digital asset sector is likely to reach $37,240 million this year and is expected to reach $82,710 million by 2027, with a compound annual growth rate of 17.30 percent. During the same period, the number of users will also grow to 412.18 million. Well, these figures speak for themselves and illustrate a growth story we have yet to see.
1. What are digital assets?
Anything that is stored online and has some value can be called a digital asset, e.g., documents, photos, videos, etc. From an investment perspective, blockchain-based assets are classified as digital assets. Cryptocurrencies and NFTs are two popular examples of digital assets.
2. Do Bitcoins come under digital assets?
Yes, because Bitcoin is a cryptocurrency and a cryptocurrency is a digital asset. Therefore, Bitcoin is one of the digital assets. NFTs can also be considered digital assets. They can be bought and sold as assets that have value.
3. Are digital assets stored on the blockchain?
Yes, digital assets are stored on the blockchain. A blockchain is a distributed ledger that securely stores all transaction data for digital assets. Examples of digital assets stored on the blockchain are cryptocurrencies, NFTs and others.
4. What is the difference between crypto assets and digital assets?
Cryptocurrencies are part of digital assets. All crypto assets are digital assets; however, we cannot say that all digital assets are crypto assets. While crypto assets include cryptocurrencies and asset-backed tokens, digital assets can include NFTs and even documents and videos that are not investment assets.
5. Should you invest in digital assets?
The answer depends on your knowledge of the assets you are investing in. If you do your research and have a good understanding of the potential and risks of digital assets, they can certainly be a good option for a diversified portfolio.