What Is a Crypto Asset?
Crypto assets are broadly defined as digital assets that use technology — like cryptography, distributed ledgers, consensus algorithms, and smart contracts — to store value. These assets are used in a similar fashion to a traditional financial (TradFi) asset, such as a medium of exchange or unit of account, or for other business purposes.
Crypto assets are generally independent of any central authorities, such as a government, financial institution, or central bank. Instead, they use a distributed ledger as their database and are maintained by participants of the network. An example of a distributed ledger is a blockchain.
Cryptocurrencies are the most popular crypto asset, as they are essentially digital currencies used as a medium of exchange or store of value. However, owners of crypto assets may use them for other purposes, such as speculation and trading.
Utility tokens differ from cryptocurrencies because they only have certain use cases within a specific ecosystem. This form of token grants the owner certain rights, including the usage or ownership of a product, as well as the right to vote in particular cases.
Like traditional securities, security tokens are financial assets representing investment in, or ownership of, an asset. Additionally, they can provide holders with certain privileges, such as voting rights, and be used to raise funds for a new business project, as well as initial coin offerings (ICOs) or initial token offerings (ITOs). In return for traders’ capital, a new business project offers security tokens that may come with benefits, such as voting rights, profit-sharing, or dividends.
Stablecoins are a type of crypto asset in which its value is derived from an outside asset. They are designed to maintain a stable value, usually by being pegged to another asset, such as the US dollar or gold.
Non-Fungible Tokens (NFTs)
Non-fungible tokens (NFTs) are tokens that exist on a blockchain. They differ from cryptocurrencies because they cannot be traded for one another; each NFT is unique and has a record of ownership. Currently, digital images are the most popular format of an NFT, but they can also come in the form of a song or video, clothing design, or official merchandise.