DIGITAL ASSETS – EMERGING TREND OR COMPLETE DISRUPTOR OF TECH

Right from the advent of computers as a machine in the 1950s to the ever growing usage of Automation technology in the recent times, we have witnessed a radical shift in economies, lifestyle, culture and even in the way we think.

This rapid change in the whole ecosystem has brought in new avenues of earning, spending and even saving one thing that is common across all years which is money. Money is a social construct which all of us recognize as a thing of value because it is a defined medium of exchange.

However have we ever contemplated as to why are we assigning so much value to a paper just because it was defined somewhere and what if there are substitutes to money but is just better than fiat money ?

Turns out there is something on the lines of the same and they are called as Digital Assets.

So what exactly are Digital Assets ?

Digital Assets are intangible things of value which are defined by data created on-chain through transactions as well as data created in the real economy and are secured through cryptography within blockchain ecosystems.

Simply put – Digital Assets are anything that is created or stored digitally which holds value.

Digital Assets were redefined after the popularity of the concepts of Blockchain and  Cryptocurrency grew between the years of 2009-2010.

Now the term Digital Assets refer to a Broad Category of Assets which  has several types within itself which are

·       Cryptocurrencies

·       Stablecoins

·       Exchange Tokens

·       Securities Tokens

·       Protocol Tokens

·       Governance Tokens

·       Non-Fungible Tokens

·       Natural Assets Tokens

·       Central Bank Digital Currency

Cryptocurrency

Cryptocurrency is decentralized digital money that’s based on blockchain technology. It is a digital, encrypted, and decentralized medium of exchange and has  no central authority that manages and maintains the value of a cryptocurrency. The value of the cryptocurrency is based on the perceived demand and supply of it in the market.

Bitcoin is a type of cryptocurrency that has gained a lot of traction. There are over 9000 different types of cryptocurrency and Bitcoin, Ethereum, Ripple and Litecoin are just amongst the popular types of the same.

Since we delved into crypto lets also talk about a name that is complementary to Crypto which is Blockchain – It is an open, distributed ledger that records transactions in code and is distributed across countless computers around the world. Transactions are recorded in blocks that are then linked together on a chain of previous cryptocurrency transactions. Basically Block chain is like your personal accountant that records all transactions for you.

Stablecoins

Stablecoins are digital assets that are designed to hold a stable value to any other well known asset. They are often linked to currencies or commodities. The value of stablecoins depends on variables that creators are not in a position to control which includes investor demand, Number of users etc.

Exchange Tokens

Exchange tokens are native to centralized exchanges like FTX, Binance and typically provide rewards and discounts. They also operate as utility tokens that crypto exchange ecosystems use for their funding and hedge risk during a market fall. These tokens are centrally managed and help to increase liquidity within the associated exchange.

These tokens are a mix of Loyalty Points and Equity. While Loyalty Points improve the quality of the holders expectation and Equity provides them direct exposure to economic benefits from the success of the exchange.

Securities Tokens

A security token symbolizes an ownership of any security like stocks,bonds,derivatives or any other type of asset. Transferring the ownership of the asset into the Blockchain by assigning a token is known as Tokenization. Transferring securities into the Blockchain will promote Smart Contract Automation which provides varied benefits like Instant Settlement, Faster and Fairer Voting while also promoting inclusivity.

However the biggest challenge here lies in converting the existing Analog Assets into crypto-native format.

Protocol Tokens

  Protocol Tokens are native cryptoassets of smart contracting protocols supporting Decentralized Finance (Defi) Apps or Non-Fungible tokens (NFTs) and virtually every other major use case for Blockchain. It is also integral for the foundation of the Blockchain Ecosystem. 

 Governance Tokens

Governance Tokens are a type of cryptocurrency that enables the owner of the tokens to participate and vote in the decision making process of any project which is on-going in the blockchain.

A lot of Decentralized Autonomous Organizations (DAOs) employ governance tokens and MakerDAO is a successful example of it.

Non-Fungible Tokens

Non-fungible tokens or NFTs as they are popularly called and as their name suggests are tokens that cannot be substituted for another NFT. Whereas Bitcoin on the other hand is fungible in nature ie, a Bitcoin can be substituted with another Bitcoin for use.

The use value of the NFT makes it non-fungible in nature as NFTs are mainly used to define Art Use or Collectibles redefining the existing Branding and culture.

NFTs are financial assets that are often considered as a status symbol or as means that connect artists and their fanfare. This token gives users property rights of owning a piece on the Internet.

Examples of NFTs include Owning an avatar, Unique Pieces of Art, Parts of virtual land, etc.

Natural Assets Token    

Commodities are usually traded in the futures market and since most futures are contracts, tokenization of natural assets offers an opportunity to incentivize preservation and conservation of natural assets. Here the value of the token is directly reflected in the token and investors of the same own a part of the token.

Central Bank Digital Currencies (CBDC)

The digital version of fiat currency is issued by a government’s official monetary authority or central bank. They are presented to be safe,legal and state-backed alternatives to other types of Digital Assets like cryptocurrencies and stable coins.

If implemented, CBDCs can drastically improve the efficiency, reach and responsiveness of financial markets. They could bring in everyone into the Banking ecosystem, reduce costs and add strength to the monetary policy systems that are already existing in place and reveal risks in the ecosystem if any.  

Conclusion

Digital Assets are seen as a major source of disruption but is also opening doors to newer areas of Investment to retail investors in future. Normalization of Digital Assets is an inevitable move with the Potential it entails to transform the financial markets space substantially. However with greater proximity to the Digital space comes increasing risks of fraud and market manipulation. Hence it is becoming extremely imperative and exigent to balance the needs to explore the benefits from the usage of financial assets while simultaneously protecting the interest of the investors at large. This also clearly highlights the emphasis governments across the globe need to provide towards investor education and to establish a robust regulatory system to safeguard the integrity of the financial system already existing in place.