Definition and Examples of Digital Assets
How Digital Assets Work
Types of Digital Assets
Advantages and Disadvantages of Digital Assets
Are Digital Assets Worth It?
Definition and Examples of Digital Assets
Digital assets are anything you can buy, sell, and hold online, but you typically cannot see or touch them physically. Well-known examples today include cryptocurrencies and non-fungible tokens (NFTs). Although you cannot hold digital assets in your hands, they are real assets that you can buy, sell, store, and trade online.
Cryptocurrencies and NFTs are individually recorded and validated through a public blockchain. Among cryptocurrencies, some popular digital assets include Bitcoin, Ethereum, Cardano, Solana, Polkadot, and Dogecoin. Cryptocurrencies can be bought and sold using accounts at cryptocurrency exchanges or trading platforms, through a standalone digital wallet. For buying and holding non-fungible tokens, you will need the same digital wallet you use for compatible cryptocurrencies.
How Digital Assets Work
There are some brokers and exchanges that allow you to buy, sell, and trade cryptocurrencies without needing your own digital wallet, such as through an app or online marketplace. However, serious investors in digital assets typically use a software wallet or a physical wallet specifically designed for digital assets.
Digital assets can be created in various ways and must be stored in a digital wallet, often called a cryptocurrency wallet or crypto wallet. Each digital wallet has a unique public address and private keys. The public address allows you to receive digital assets, while the private keys grant you access to your assets if you want to send them to another address or sell them.
Just like the string of texts that form your wallet address and private keys, each digital currency and non-fungible token has a unique address. Each digital asset is tracked using a large public database called a blockchain. Transactions are verified in batches called blocks, retaining a record of the digital asset’s ownership since its inception. This creates a secure and trustworthy network where anyone can participate.
Digital assets are semi-private, as your wallet address is public, and anyone can see the assets that the wallet holds at any given time. However, unless you share your identity, it’s difficult to know who owns each wallet.
How to Obtain Digital Assets
The easiest way to start investing in digital assets is to use an exchange like Coinbase or an online broker like SoFi or Robinhood. These services take care of the technical aspects of investing on your behalf, including creating and maintaining a digital wallet for you, if necessary. You can easily buy, sell, and trade Bitcoin and other supported cryptocurrencies with a funded and verified account.
Types of Digital Assets
As discussed, the most common types of digital assets are cryptocurrencies and non-fungible tokens (NFTs). However, there is no limit to what you can do with digital assets. In the future, we might see stocks, car titles, real estate, and other physical assets eventually transition into a blockchain ownership format.
Cryptocurrencies: While there is debate about when cryptocurrencies actually began, the first cryptocurrency transaction took place in 2010, and it has recently grown to become serious financial assets. As of October 2021, the total market value of Bitcoin exceeds one trillion dollars. The second-largest cryptocurrency, Ethereum, is valued at more than 400 billion dollars.
Anyone with an active cryptocurrency wallet can send funds to any compatible wallet. However, not all cryptocurrencies and wallets are compatible, so it’s important to know that you have the correct type of address before sending. Cryptocurrency transactions are irreversible, and funds cannot be retrieved in case of a mistake.
Tokens
Non-fungible Tokens (NFTs): Non-fungible tokens, also known as NFTs, represent digital art and other content presented digitally. Just as every Bitcoin is the same, each non-fungible token is a unique asset. However, you’ll use the same technology to buy, sell, and trade non-fungible tokens as you do with cryptocurrencies.
You can find non-fungible tokens for sale in major public marketplaces, including sites like OpenSea and Rarible.
Advantages and Disadvantages of Digital Assets
Advantages:
- A public system anyone can participate in
- High security when used correctly
- Ownership of semi-anonymous assets
Disadvantages:
- Requires some computer knowledge
- Unable to fix blockchain errors
- Risk of fraud and losses
Are Digital Assets Worth It?
Digital assets have made many people extremely wealthy in cryptocurrencies and non-fungible tokens; however, there are many risks associated with investing in digital assets. There is no guaranteed future for digital assets, so it’s up to you to decide whether digital assets are worth the risk to your portfolio. Before investing in digital assets, consider the risks or even talk to a financial advisor. It’s wise to avoid investing amounts greater than you can afford to lose.
Source: https://www.thebalancemoney.com/what-is-the-digit-app-and-how-does-it-work-4800385
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