What Are the Different Types of Digital Assets?
Digital assets have become almost synonymous with cryptocurrencies, and although cryptocurrencies are a type of digital asset, the latter is a much broader concept. As more people and investors are drawn toward digital assets, it is important to understand what digital assets are and how cryptocurrencies fit into this broad class.
Jul 12 2022 | ArticleWhat Are the Different Types of Digital Assets?
Digital assets have become almost synonymous with cryptocurrencies, and although cryptocurrencies are a type of digital asset, the latter is a much broader concept. There are only three main types of crypto exchanges, but the world of digital assets is extremely diverse. As more people and investors are drawn toward digital assets, it is important to understand what digital assets are and how cryptocurrencies fit into this broad class.
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#What Is a Digital Asset?
In the simplest terms, a digital asset is a content that's stored digitally. A digital asset is a digital representation of value made possible by advances in cryptography and distributed ledger technology, also known as a blockchain. The cryptography of a digital asset is unique to that asset and can be tracked using the distributed ledger technology.
Although digital assets have found their broadest use case in transactions (cryptocurrencies like Bitcoin and Ethereum fall into this category), intangible content, such as computerized artworks, video, and contract documents, can also be stored on the blockchain as digital assets.
#What Types of Digital Assets Exist?
Cryptocurrency
This is the most popular type of digital asset in the market today. There are many cryptocurrencies in the market, the most popular being Bitcoin, Ethereum, Tether, Dogecoin, and Binance Coin.
Cryptocurrencies leverage the cryptographic foundation of a blockchain to store value, provide a means of exchange, and function as a unit of account. Cryptos are often referred to as digital money and can be bought, sold, and swapped on exchanges.
Crypto Commodity
Commodity crypto assets facilitate the creation of new, independent digital assets by using fundamental cryptographic principles of a blockchain. The Ethereum blockchain introduced these types of assets. Just like real-world assets like gold can be used to create necklaces, bracelets, and rings, the Ethereum blockchain allows users to create different forms of assets—crypto commodity assets.
Utilizing the smart contracts functionality of the Ethereum blockchain, developers can create ERC-20, the standard for fungible tokens (Chainlink, Basic Attention Token, Civic, OmiseGo), and ERC-721, the standard interface for non-fungible tokens (NFTs). These commodity tokens stand-alone, assuming a value independent of Ethereum's value.
Utility Tokens
These digital assets provide access to a company's products and services. Unlike cryptocurrencies, utility tokens are not designed to be an investment medium. Instead, utility tokens are like digital coupons that can be used for a service that is already live or in the process of being developed.
Security Tokens
Security tokens are digital assets that represent transferred ownership rights or asset value like real estate, vehicles, or corporate stock to a blockchain token. Depending on the scale of the physical asset, a security token can represent the whole or a fraction of the asset.
Hybrid Tokens
There are two types of holders of hybrid tokens—participants who want to access the right to a specific product or service, and investors who hold the speculative value of the product or service.
Real-World Asset Tokens
As the name implies, these types of digital assets are used to represent tangible real-world assets. Real-world asset tokens take on the value of the tangible asset by acting as a digital record of ownership. Because of this, they are often referred to as the digital shadow of a tangible real-world asset.
#In Summary
Digital assets are broader than cryptocurrencies, comprising any content that can be stored and transmitted electronically through digital devices. Digital assets are revolutionizing concepts of value and ownership, especially when it comes to intangible assets.