What is a Crypto Asset – Meaning, Classification, Valuation

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What are crypto assets? Where is the difference between cryptocurrencies, crypto assets, and digital assets? How are they classified and how is the value of crypto assets determined? Questions upon questions which we are here to answer.

Antigua and Barbuda is on the forefront of the latest trends in the digital asset scene and naturally, so are our experts at Relocate Antigua. This is why in this article we are going to answer all your questions around crypto assets. And of course you can find more information about related topics such as Blockchain Antigua or Bitcoin Antigua on our website.

Digital assets and Crypto assets – definition

Before 2009 when talking about digital assets, we were mainly talking about things such as

  • music files
  • digital photos
  • videos
  • design files, word documents, PDF
  • websites; domains

Basically, everything that exists in binary format and has a value. Then in 2009 the cryptocurrency Bitcoin emerged and became a game changer in the world of digital assets. A driving force in the digital asset revolution is the Blockchain technology. It provides the ideal infrastructure to own and exchange digital assets such as Bitcoin and various other cryptocurrencies.

Simply put, crypto assets are digital assets, but not every digital asset is a crypto asset.

Characteristics of crypto assets are:

  • use of cryptography
  • depends on distributed ledger technology (DLT). One of the most famous ones is Blockchain and therefore often used synonymously
  • no third party like a bank or another central authority is needed to issue or exchange crypto assets such as Bitcoin
  • most common purpose of use: a) a means of exchange b) as an investment or c) to access goods or services

Examples for crypto assets are cryptocurrencies such as Bitcoin. Therefore, every cryptocurrency is a crypto asset, but not every crypto asset is a cryptocurrency. This is because crypto assets can be can be assigned to three different categories of “tokens”. Before introducing these categories or types of tokens lets first take a quick look at the definition of tokens and tokenization of assets.

Crypto asset management - How it works and the best tools

What is tokenization?

Without going into much detail, a token can be described as data that stands for a valuable piece of information or represents the ownership of a real-world item in form of a digital token on a blockchain. Such real- world items could be anything from a piece of art up to real estate.

The process of converting e.g. ownership rights of real-world items into tokens is called tokenization. Simply put, a digital token represents a real asset.

This concept is not new as there are many assets that are difficult to transfer and therefore papers are used to represent those assets. Digital tokens have many advantages papers don’t have. Papers can be hard to track, difficult to transfer and usually involve a lot of legal agreements all of which is not true for digital tokens.

The number of items included in the term digital asset is likely to grow even more, because no matter, if it is an asset, a currency or a supply chain, theoretically all these things have the potential for tokenization and therewith becoming a digital asset.

Furthermore, it shouldn’t go unnoticed that tokenization has the potential to change the way we invest in assets and disrupt many industries, above all the financial industry.  Why is this? Tokenization offers many advantages to sellers and investors, for example more transparency and faster and cheaper transaction. Over all it has the potential to create a fairer financial world.

Crypto asset classification

Now that we have taken a closer look at tokenization, let’s have a look at the different types of crypto assets, because not every token is meant to be used as a currency and therefore a crypto asset is not necessarily a crypto currency.

Security Token

“Security” as part of the name already indicates, these tokens are used in highly-regulated markets such as real estate or stock markets. Therefore, the purchase and transfer of these tokens is regulated by strict guidelines. For example, a Security Token can stand for a share of ownership in a company. In general, these tokens can be compared to investment contracts. The owner of a Security Token my profit from market appreciations or dividends etc.

Utility Tokens

These tokens provide access to products or services and do not represent an investment or an ownership. It can be compared to a digital voucher that gives you access to a platform.

Payment Token

Crypto currencies such as Bitcoin, Litecoin, Monero and many more fall into the category Payment Token. They are often used as a means of payment like digital cash.

Crypto asset valuation

Determining the value of crypto assets is often not that easy as it depends on many different factors and the environment is volatile. The value of cryptocurrencies has gone through extreme ups and downs over time.
Furthermore, as we have just discussed, there are different types of tokens, therefore, determining the value of crypto assets also depends on the category the crypto asset belongs to.

Some crypto assets are rare and/or limited in supply and are therefore often compared to gold and seen as an investment. For example, the number of Bitcoins that can be mined in total is limited. This means once there are 21 million Bitcoins, no more coins can me mined.

To name a couple of criterias that can determine the value of cryptocurrencies and may explain why they are volatile:

  • quantity and liquidity
  • usage
  • the company issuing the crypto currency
  • media coverage
  • speculation
  • it’s a relatively new market and technology is still developing

Conclusion – The growing number of crypto assets has the potential to change the way we invest

What is crypto asset? Crypto assets use cryptography and Blockchain technology or another DLT, therefore they have a very high level of transparency and make third parties like financial institutions superfluous.

Crypto assets have many benefits such as:

  • Privacy and speed of transactions
  • Reduced transaction costs
  • Immutable record of transactions

Back in 2009 the only crypto asset was Bitcoin, but because many assets, currencies and even supply changes have the potential for tokenization the number of crypto assets and therewith also the number of digital assets is likely to grow. Thanks to special characteristics of crypto assets, to be precise the use of cryptography and Blockchain technology, the way we invest in assets might change and this has the potential to disrupt many industries.

You want to stay on top of the latest trends in the digital asset scene? You don’t want to risk being left behind and are wondering where to invest? Contact us! Relocate Antigua is here to advice you on digital assets in Antigua.

You want to learn more about crypto assets? Then our article “Crypto asset management – How it works and the best tools” may interest you.

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