LeoGlossary: Digital Assets
Anything that exists only in digital form and has a distinct usage right. This is what separates it from data which doesn't have this. It is the right that turns data into an asset.
As technology advances, the amount of digital assets grow. They also change form as new ones are generated.
Examples of Digital Assets:
- software
- logos
- photography
- animations life GIFs
- audiovisual media
- spreadsheets
- websites
- digital art
- emails
Metadata also fits into this.
The Internet
Before the Internet, digital assets were typically scans or something that was created by individual users in terms of documents or pictures.
The commerce and financial activity related to the web means that we saw enormous value generated. Here is where the money related to digital assets exploded. A website like Facebook is worth hundreds of billions of dollars as that is the basis of its entire platform.
This created many new forms of intellectual property. These can be video, audio, photos, text, and other digital files.
The storing and transferring of these assets were also enhanced by the Internet. Servers took over as the primary storage mechanism as the cloud expanded.
While value grew, liquidity did not. The digital assets originally created by the Internet required a direct sale between two parties.
Cryptocurrency
Bitcoin was introduced in 2009 with the mining of the first block by Satoshi Nakamoto. This earned the first coins as reward for validating that transactions.
Cryptocurrency helped with the transformation since the value was captured in the coin itself.
Fungible tokens are all the same in terms of not being unique. One bitcoin is the same as every other. Each is recorded and authenticated on the blockchain. The network keeps track of all balances, updating as more transactions are processed. These are stored in wallets which are similar to accounts at a bank. The difference is they are accessed by a private key. Without that, the coins or tokens in the wallet cannot be moved.
Exchanges
The revolutionary change that took place was the formation of exchanges in which digital assets can be traded. This is where fungible tokens were swapped. This is mostly done through centralized exchanges (CEX) which are similar to those that handle stocks and bonds. The initial was modeled after Wall Street.
Decentralized exchanges (DEX) are also gaining in popularity. These operate without a centralized order book although they can have an automated market maker. This idea is to have a decentralized application facilitate the bringing together of buyers and sellers.
Liquidity pools were also employed to provide a decentralized way to swap cryptocurrency.
This is an important aspect of the market. Exchanges allow for price discovery while also offering liquidity for those looking to exit their positions.
Non-Fungible Tokens
Non-Fungible Tokens (NFTs) is cryptocurrency that offers great potential.
These differ from fungible tokens in each is unique. There are no two NFTs that are the same. Each is a separate asset. Like the fungible counterparts, each NFT is recorded and authenticated on the blockchain.
Many believe that NFTs are the link between real world assets. Many assets lack liquidity and are slow to transfer. Real estate is an example of an asset that does trade in a manner that is slow as well as inefficient.
Tokenization offers the promise of transforming this. If real world assets such as a property can be represented as a digital asset such as a NFT, it can be distributed in a manner similar to stock.
