Digital assets — such as cryptocurrencies, stablecoins, NFTs, central bank digital currencies and security tokens — are created the moment new information is added to a blockchain via a new block. Blockchain entries not only indicate the presence of existing digital assets, but they signify the minting process of new ones as well.
What is a blockchain?
A blockchain is the form of technology that allows digital assets to exist in the first place. In other words, a blockchain is a method of securely storing and recording information via a peer-to-peer network. It's essentially a shared, public database duplicated across all computer systems. It allows new entries to be added without existing ones being altered.
Blockchain entries are individually recognized as blocks. They are generated in accordance with particular preset protocols. Each block contains encoded information regarding the previous block, so the order and structure of the blockchain are reinforced as more blocks are added, ultimately growing the blockchain over time.
Now, let's take a much closer look at five individual digital asset categories.
Cryptocurrency is essentially the digital storage of value or the mode of exchange that is stored on a blockchain. Often shortened to crypto, cryptocurrency can be used to make investments, pay for products and services, or create a way of funding a project via the introduction of a new coin.
Stablecoins are a type of cryptocurrency. More specifically, they are designed with price stability in mind. The price points of stablecoins are associated with fiat currencies, commodities and other types of crypto-related assets.
From there, the stablecoins can be used to make payments or engage in foreign exchange. They are favorable due to the way they can be used for cross-border payments and transfers alike.
NFTs indicate ownership of unique digital items. These digital items often include works of art, government IDs or specified units of production.
An NFT essentially signifies the fact that the holder of the NFT owns the underlying digital assets and the rights to them. As such, the NFT owner can freely sell, trade or redeem digital assets as they wish.
Central bank digital currencies
CBDCs represent a nation's fiat currency. They are backed by the nation's central bank. Like other types of digital assets, CBDCs can be used to make payments and transfers, whether across borders or within the same nation.
Security tokens uphold the standards set for security and financial investments. You can think of them like stocks and bonds. However, they can also be tokenized versions and real-world assets, such as real estate, plants, equipment or other types of property.
Where do you store digital assets?
Digital assets are stored on a blockchain ledger. The ledger entry has a public key and a private key. You can think of these like computer-generated email addresses and passwords.
Wallets can store these keys in a secure manner so only you have access to your digital assets. This promising sense of security can give you peace of mind while creating a convenient place where you can view your assets and all ledger positions.
More information about digital assets and blockchains
Similar to a password, your private key serves as the means to verify ownership of a specific digital asset. If you wish to transfer cryptocurrency to someone else, ensure that your private key is included in the transaction to validate it as a new entry in the blockchain.
Digital assets have the potential to be used for various purposes, such as purchasing products and services, including NFTs, tickets, real-world experiences and even the ownership of tangible assets like cars.
Decentralized finance encompasses a range of financial applications facilitated by digital assets. By leveraging smart contracts and employing code, you can automate intricate transactions and financial activities using digital assets as the medium of exchange. This allows for automatic loan and insurance agreements through blockchain-enabled providers.
Exchanges provide a platform for trading digital assets, similar to traditional foreign exchange or stock markets. These trades can serve as speculative investments or enable the acquisition of in-game currencies. Standard exchanges also offer the ability to exchange digital assets for stocks, commodities and other financial instruments.
Decentralized applications, known as dApps, are open-source applications that operate on a network of computers within a blockchain. They are not subject to the control or interference of a single authority and cannot be deleted once posted, even by their creators.
You can use dApps to eliminate intermediaries, and they can be used for maintaining privacy, executing financial contracts, engaging in multiplayer games and accessing social media platforms. However, they face challenges related to scalability, developing user-friendly interfaces and making code modifications.
While digital assets present opportunities for significant returns, it is important to remain cautious due to the presence of scams, Ponzi schemes and fraudulent initial coin offerings.
The decentralized nature of digital assets makes it challenging to track and hold perpetrators accountable. That's why exercising caution and conducting thorough due diligence is advisable when engaging with digital assets.
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