Crypto assets are virtual or digital assets used as a medium of exchange of goods and services. They are a variety of cryptocurrencies used for investments and different purposes in the Cryptosystem that uses a cryptographic system for securing and validating transactions. They are often used for online purchases and international funds transfers.
They are generated through a process known as mining, which involves using powerful computers to solve complex mathematical problems in order to validate transactions.
Cryptocurrencies are also used as a store of value for a commodity although, their value proposition is based on the supply and demand in the cryptosystem.
Importance of Crypto assets
1. Transaction speed
Cryptocurrency transactions do not take a long time for funds to transfer, they can be completed in a few minutes. Once the transaction block is confirmed and validated, the funds are available for use.
2. Transaction costs
Crypto transactions are less expensive compared to other forms of local or international funds transfer. Although an increase in blockchain demand leads to a corresponding increase in transaction fees remains less than other forms of transfer.
3. Accessibility
It is easy to open a Cryptocurrency Wallet using a smartphone or laptop with a stable internet connection. The ability to bypass some stressful protocol required for account opening in a local or other international funds transfer makes it a system of choice for anyone interested in it.
It is an accessible and decentralized system of financial services that makes online transactions easy.
4. Security
Cryptocurrencies operate in a cryptographically encrypted system that secures your password. This is why it is very important to always use details you can easily remember to avoid losing your funds when you forget your password.
Unless someone gains access to your private information for your crypto wallet, they cannot sign transactions or access your funds. The blockchain system helps is structured to secure any transaction that takes place in the cryptosystem.
5. Transparency
The level of transparency helps to reduce fraudulent transactions in a Crypto ecosystem. You can present evidence of funds sent and received or your available funds for transfer.
6. Inflation protection
Some Crypto Assets have proved to reduce the risk of inflation in the economy. This is due to their fixed supply which prevents new coins from being introduced into circulation thereby protecting against inflation.
Different Types of Crypto Assets
There are numerous types of crypto assets, each with unique features and characteristics.
1. Cryptocurrencies
They are digital currencies that serve as a medium of exchange. Some examples of cryptocurrencies include:
- Bitcoin (BTC)
This was the first and most popular cryptocurrency created in 2009 by an unknown person or group of people under the pseudonym Satoshi Nakamoto. It operates a decentralized system that operates on a secure peer-to-peer network.
- Ethereum (ETH)
This is a platform that enables the creation of smart contracts and decentralized applications (dApps) using its cryptocurrency called Ether. It was launched in 2015 and is now the second-largest cryptocurrency by market capitalization.
- Binance Coin (BNB)
It is a cryptocurrency created by Binance, one of the largest cryptocurrency exchanges in the world. It is used to pay transaction fees on the Binance exchange platform and also be used to pay for certain services and products on the platform too.
- Cardano (ADA)
This platform aims to provide a more secure and sustainable infrastructure for decentralized applications and smart contracts. It was created by a team of academics and engineers and has a scientific approach to blockchain development.
- Dogecoin (DOGE)
It was created as a joke in 2013 but has gradually become popular in the crypto ecosystem.
- Ripple (XRP)
This is a digital payment protocol designed to facilitate fast and secure cross-border transactions. It is usually used by banks and other financial institutions to transfer funds across borders.
- Litecoin (LTC)
It is a peer-to-peer cryptocurrency that was created in 2011 by Charlie Lee, a former Google engineer, designed to be faster and more efficient than Bitcoin, with lower transaction fees and faster block times.
- Stablecoins
These are cryptocurrencies that are designed to maintain a stable value being fixed to another asset, such as fiat currency or a commodity. Examples of stablecoins are;
- Tether (USDT)
This is the largest and most popular stablecoin in the crypto market, with a market capitalization of over $60 billion. It is fixed to the US dollar, with each USDT token being equivalent to one US dollar.
- USD Coin (USDC)
This is another popular stablecoin, with a market capitalization of over $20 billion fixed to the US dollar like the Tether coin.
- Dai (DAI)
This stablecoin is fixed to the US dollar but endorsed by a basket of cryptocurrencies. It is a decentralized stablecoin created and managed by the MakerDAO project.
- Binance USD (BUSD)
This stablecoin is also fixed to the US dollar and is issued by Binance, one of the largest cryptocurrency exchanges in the world.
- TrueUSD (TUSD)
TrueUSD is a stablecoin that is pegged to the US dollar and is issued by TrustToken, a platform that enables the tokenization of real-world assets.
- Paxos Standard (PAX)
Paxos Standard is a stablecoin that is pegged to the US dollar and is issued by Paxos, a regulated financial institution that provides blockchain-based solutions for the financial industry.
2. Security Tokens
These are digital tokens that represent ownership of an asset or the right to a share in equity, a company, or real estate.
Being digital assets, they represent ownership or other rights to transfer value from an asset to a token. In other words, they are the digital form of traditional investments such as stocks, and bonds owned by stakeholders. They are used on existing blockchains because they don’t have their blockchain.
Sometimes, companies that need funds for projects can issue separate ownership of their company through digital (Security) tokens to individuals interested instead of issuing shares. This token can then be offered to investors on exchange platforms that allow digital security tokens. The following are examples of security tokens”
- Equity Tokens
These tokens are used to represent ownership in a company, similar to traditional stocks. Equity tokens can be traded on regulated exchanges and provide investors with voting rights and dividends as stakeholders.
- Debt Tokens
These tokens are used to represent debt, such as a bond or loan. The Investors can earn interest payments on debt tokens, and they can be traded on regulated exchange platforms.
- Real estate Tokens
These tokens represent ownership of a real estate asset like a building or piece of land. They can also be traded on regulated exchange platforms and they provide investors with rental income which appreciates with time.
- Asset-backed Tokens
These are backed by physical assets, such as gold, oil, or other commodities. They can also be traded on regulated exchange platforms to provide investors with the financial benefits of the asset involved.
- Security Tokens for Funds
These represent ownership in a fund, such as a venture capital or private equity fund. Investors will receive distributions and capital gains from the fund, and the tokens are traded on regulated exchanges like the other security tokens.
Other Security Tokens include; Harbour, SPiCE VC, tZero, and Elevated Returns.
The following are examples of Security Token Platforms.
- Ethereum
A decentralized, open-source blockchain platform founded in 2015 that uses the Ether (ETH) token to enable smart contracts and decentralized applications (dApps) to be built and run on the Ethereum network.
It has the ability to create and execute Smart Contracts and also enables developers to build and run decentralized applications (dApps) on its platform without the need for a central authority or intermediary. This makes them more secure and resistant.
- Polymath
This is a blockchain-based platform that allows businesses to create and manage security tokens by simplifying the technical aspect of token creation and compliance also using Smart Contracts. It was founded in 2017 by Trevor Koverko and Chris Housser.
- Swarm fund
A blockchain company that builds an open exchange system for digital securities to democratize investment and disrupt the private equity sector. It was founded in 2014 in Silicon Valley by Phillip Pieper and Timo Lehes.
One of the advantages of using security tokens is that they provide greater liquidity and are more transparent than traditional securities. They also offer the potential for lower transaction costs.
3. Utility Tokens
These are digital tokens that are used to access or pay for services within a particular blockchain platform or ecosystem. They are not a real-world medium of exchange, instead can be used only when there is a case within its respective smart contract protocol.
They are not mined into existence like some other cryptocurrencies. investors, and the general public.
Any business with a crypto project can create utility tokens on a smart contract blockchain just to grant users access to special features throughout the project duration.
Some of the ways Utility Tokens can be used include gaming, paying network fees, Crypto exchange perks, and voting.
Some examples of utility tokens include:
- Ether
Used to pay for transactions on the Ethereum blockchain
- Basic Attention Token (BAT)
Is a Utility Token released for the digital advertising industry that pays its users for their attention and also the publishers for their content.
- Golem (GNT)
It was designed to become a building block for future Internet service providers and software development where users can create, compute, and earn by building complex software solutions by accessing computing resources across the platform.
- Augur (REP)
This was created for the sporting industry and designed for the reporting and disputing of the outcome of events on online prediction markets.
4. NFTs( Non-Fungible Tokens)
These are digital assets that represent ownership or proof of authenticity of a unique digital item or piece of content, such as a piece of art, music, video, or other digital media. NFTs use blockchain technology to provide a secure and transparent way to verify ownership and track the history of transactions for digital assets.
Each NFT is unique and cannot be replicated, unlike fungible tokens such as cryptocurrencies, which are interchangeable with each other. NFTs can be bought, sold, and traded like other assets, and their value is determined by supply and demand in the market.
There are several platforms where you can buy and sell NFTs, including OpenSea, Rarible, and Nifty Gateway. To create an NFT, you typically need to upload the digital content to an NFT platform and mint a new token. Once the NFT is created, you can set a price and put it up for sale on the marketplace.
5. Decentralized Finance (DeFi) Tokens
These are digital tokens that are used within decentralized finance applications, which allow for permissionless, peer-to-peer financial transactions without intermediaries. Examples of DeFi tokens include AAVE, Uniswap, and Compound.
Factors to Consider when Investing in Crypto Assets
1. Liquidity
This is the ability for the asset to be bought or sold easily with seamless transactions.
2. Market Capitalization
This is a measure of the popularity of the asset in the market.
3. Use Case
This explains the various uses of digital assets beyond digital money which are, access to personal finance, Smart Contracts, Stablecoin, etc.
4. Security
Crypto transactions are transparent with the peer-to-peer network making it more secure than traditional wire transfers.
5. Regulatory Landscape
The blockchain technology used by Crypto assets gives it a non-regulatory landscape where transactions are done without an intermediary.
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FAQs
What are Smart Contracts?
Smart contracts are self-executing programs that are stored on the blockchain and are used to automate the transfer of value and assets between parties.
They are executed automatically when certain conditions are met, such as when a payment is made, and can be used for a wide range of applications, from financial services to supply chain management.
What is the difference between Cryptocurrencies and Utility Tokens?
Cryptocurrencies are digital assets of a specific blockchain created to be a real-world medium of exchange while Utility Tokens are digital assets created by a Smart Contract blockchain to serve a specific purpose in a Crypto project but not as a medium of exchange.
What is the Difference between Utility Tokens and Security Tokens?
A Utility Token is created to allow investors access to products and services while a Security Token is created as a unit of value, to allow investors to gain ownership in a company venture.
Conclusion
In conclusion, the world of cryptocurrency is constantly evolving and expanding, with new types of crypto assets being developed and introduced on a regular basis. Each type of crypto asset serves a unique purpose and offers distinct features and benefits to users.
Understanding the different types of crypto assets can help investors and traders make informed decisions about which ones to invest in, and how to manage their portfolios effectively.
Whether you are interested in Bitcoin, altcoins, stablecoins, security tokens, or utility tokens, it’s important to do your research, stay up-to-date with the latest developments, and take a strategic approach to investing in this exciting and dynamic market.
