A few years ago, digital assets and the blockchain revolutionized how we do business. It gave rise to a new class of investors and entrepreneurs who use technology to disrupt traditional industries.
If you’ve been following the news about cryptocurrency like Bitcoin, Ethereum, Litecoin, and others, you might find yourself wondering what they are, what their value is, and whether they should be part of your investment portfolio.
In 2017, digital assets and cryptocurrency were hot topics in the news. Bitcoin, the first decentralized cryptocurrency, was in the spotlight as its value soared past $200 billion. Various digital assets also emerged as a new way for investors to get in on the action as well as a way to make it easier to invest in startups and other ventures. In the months after the 2017 “crypto bubble”, the popularity of digital assets and cryptocurrency seemed to cool off, but the price of bitcoin rebounded in the first part of 2018, and the recent surge in the price of ether, the second-largest cryptocurrency, has made it the second-most valuable cryptocurrency, at $40 billion. Now, with a new period of growth in the crypto space, digitalOver the past decade, a new asset class has taken the world by storm: digital assets and cryptocurrencies. It started with bitcoin in 2009 and has since spread to thousands of different cryptocurrencies. Bitcoin, the first and largest cryptocurrency by market capitalization, is widely considered the gold standard of the asset class. Over time, the value of other coins has dropped to zero, and it is likely that many more will follow. Only cryptocurrencies with a large market capitalization and history can be considered potential investments. Most digital assets are purely speculative in nature. Here’s what potential investors need to know about digital assets and cryptocurrencies. Associated: Popular terms every crypto-currency beginner should know Photo credit: DepositPhotos.com.
What is a digital asset?
In general, most digital assets fall into two categories:
- cryptographic tokens
To keep it simple, they are often called coins or tokens. Photo credit: Grindi / istockphoto.
What are crypto-currencies?
Besides bitcoin, there are many other types of cryptocurrencies. These include:
- Bitcoin cash
In 2011, Charlie Lee created a hard fork of the Bitcoin network (BTC), meaning that a new and different blockchain was created based on the old blockchain. Lee has named this new coin Litecoin (LTC). LTC uses a different consensus algorithm than BTC, making transactions generally faster and cheaper. But because the Litecoin network is much smaller, it is also less secure. Many other digital assets and cryptocurrencies have been created over the years. Some of them were forks of the Bitcoin code. Many of them are completely new projects. Like Litecoin, many of these other cryptocurrencies have similar characteristics to Bitcoin, but their networks and market cap are much smaller. Photo credit: Jirapong Manustrong / istockphoto.
What are cryptographic tokens?
Tokens are digital assets that can be used for various purposes. One of the most common types of tokens is known as a utility token. It is a token that performs a specific function in the digital ecosystem. An example of a useful token is the Basic Attention Token (BAT). BAT is a native token in the Brave browser designed to protect users’ privacy through a new advertising model. In this model, all ads are blocked by default and the user can choose which ads to see. When a user chooses to view an ad, they are rewarded with a small amount of BBT. This way, advertisers can reach their target audience and users can maintain their privacy. Ether (ETH), the token of the Ethereum smart contract network, is the second largest crypto currency in terms of market capitalization. ETH is used as fuel (aka gas) for decentralized applications – applications based on smart contracts that run automatically when certain conditions are met. There are even digital assets for social media that reward users in the form of cryptocurrency for creating and curating quality content, as Steemit does with the STEEM token. New applications are constantly being developed, and the list could be extended almost endlessly. Photo credit: NiseriN / istockphoto.
History of digital assets and cryptocurrencies
The white paper on bitcoin, also known as Satoshi Nakamoto’s white paper, was released on 31. Published in October 2008. Just over two months later, on the 3rd. In January 2009, the Bitcoin network was launched and a new asset class (cryptocurrency) was born, along with a new technology (blockchain). Bitcoin is a rare form of digital currency that can be transferred from peer to peer without a financial intermediary. It uses a consensus proof-of-work (PoW) algorithm and has a fixed bid limit, so it cannot be created from scratch. Photo credit: whyframestudio / istockphoto.
Benefits of investing in digital assets
The benefits of investing in digital assets go beyond the potential for significant capital gains, with the biggest benefits of investing in digital assets being:
- Individual sovereignty and reduced counterparty risk
- Portfolio diversification
- Protection against inflation
There are people in the community who want to buy cryptocurrencies because they promote individual freedom and sovereignty, not for their wealth potential. There are also those who value these investments as a unique form of diversification and hedging against inflation. Photo credit: SKapl / istockphoto.
Bitcoin allows people to become their own bank. Holding assets in a traditional bank or other financial institution makes a person vulnerable to the risk that that institution will fail or mismanage their assets. This risk is called counterparty risk. Because they are peer-to-peer, digital assets and cryptocurrencies eliminate any counterparty risk. By having their own private keys, investors can fully own their digital assets and cryptocurrencies. Apart from gold and silver, no other asset possesses this property. Photo credit: .
Bitcoin has become the best performing asset class of the past decade. In eight of those years, the return on bitcoin holdings exceeded that of any other asset in the world. At the moment, this also applies to 2020. (As with any investment, past performance is not indicative of future results). Cryptocurrencies can diversify an investment portfolio in a way that no other asset class can. Cryptocurrencies are known as uncorrelated assets, meaning they tend to have little to no correlation to the rest of the investment world (although this has sometimes changed in 2020). Photo credit: rockdrigo68 / istockphoto.
While all investments involve risk, investors often overlook a risk inherent in any cash investment (stocks, bonds, mutual funds, ETFs, etc.): Risk of inflation. The law of supply and demand states that when the supply of a product increases, its price falls if demand does not increase by the same amount or more. With central banks expected to create tens of trillions of new currencies in 2020 alone, more and more investors have begun to focus on supply-side digital assets and cryptocurrencies with fixed limits, such as. B. Bitcoin, for example. It should be noted that the only cryptocurrencies that can serve as a viable hedge against inflation are those that have a fixed delivery limit. Like gold, scarce assets tend to increase in value when inflation occurs. Moreover, global uncertainties and shocks tend to increase the demand for protective assets. And amidst the chaos of 2020, bitcoin is the world’s best performing asset: At the time of writing, it has increased by 80% in one year. (Despite this success, past performance is not indicative of future results). Photo credit: Andre Francois on Unsplash.
Digital assets and risks
The vast majority of altcoins are purely speculative in nature. Most have a very small market capitalization of less than $1 billion or even $100 million, so their prices can fluctuate wildly over short periods of time due to a lack of liquidity. And in the long run, it’s not uncommon for altcoins to drop to zero and investors to lose everything. Bitcoin is perhaps a little different because it has the most secure network (thanks to the highest hash rate), the longest history, and the highest market value. Photo credit: Jirapong Manustrong / istockphoto.
Best practices for investing in digital assets and cryptocurrencies
Anyone considering investing in digital assets and cryptocurrencies would do well to consider the relevant issues. Satoshi Nakamoto’s white paper might be a good place to start. The Bitcoin FAQ on Bitcoin.org also answers many questions and addresses common misconceptions about bitcoin and cryptocurrencies. The more a potential investor becomes familiar with crypto-currency terms such as bitcoin splits, bitcoin forks, crypto-currency wallets and crypto-currency exchanges, the less confusing this type of investment will seem. Because of the volatility of digital assets and cryptocurrencies, a common strategy is called dollar averaging. Instead of trying to anticipate the markets, investors sometimes buy fixed dollar amounts at fixed times. Example: An investor who sets up a recurring purchase to automatically buy $50 worth of bitcoins every two weeks. Photo credit: Khongtham/istockphoto.
The snack bar
When it comes to digital assets and cryptocurrencies, there is still a lot to learn. This relatively new asset class has many advantages, from individual sovereignty to hedging inflation, but for new investors it can feel like the Wild West. Read more: This article was originally published on SoFi.com and syndicated by MediaFeed.org. SoFi Invest The information provided does not constitute investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, objectives and risk profile. SoFi cannot guarantee future financial performance. Advisory services provided by SoFi Wealth, LLC. SoFi Securities, LLC, member of FINRA / SIPC . SoFi Invest refers to three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms and conditions applicable to one or more of the platforms listed below. 1) Automated Investing – The Automated Investing platform is owned by SoFi Wealth LLC, an SEC-registered investment adviser (Sofi Wealth). Brokerage services are provided by SoFi Wealth LLC through SoFi Securities LLC, an affiliated broker-dealer registered with the SEC and a member of FINRA/SIPC, (Sofi Securities). 2) Active Investing – The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities is provided by APEX Clearing Corporation. 3) The cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered money services company. For more information about the SoFi Invest platforms described above, including the state license of Sofi Digital Assets, LLC, please visit www.sofi.com/legal. Neither SoFi Wealth’s investment adviser representatives nor SoFi Securities’ registered representatives receive compensation for the sale of products or services sold through a SoFi Invest platform. Loan product information contained herein shall not be construed as an offer or prequalification for any loan product offered by SoFi Lending Corp and/or its affiliates. Crypto: Bitcoin and other cryptocurrencies are not backed or guaranteed by any government, are unstable, and are high risk. Consumer protection and securities laws do not regulate cryptocurrencies to the same extent as traditional brokerage and investment products. Research and knowledge is a must before getting started with any crypto currency. U.S. regulators, including FINRA, the SEC, and the CFPB, have issued public guidance regarding digital asset risk. Purchases in cryptocurrencies cannot be made with funds from financial products, including student loans, personal loans, mortgage refinances, savings, retirement funds or traditional investments. Mention of third party trademarks None of the brands or products mentioned are associated with, endorsed by or sponsored by SoFi. Third-party trademarks mentioned herein are the property of their respective owners. Investment risk Diversification can help reduce some investment risks. It cannot guarantee profits or fully protect them in a declining market. Financial advice and strategies The advice given on this site is general in nature and does not take into account your specific objectives, financial situation or needs. You should always consider whether they are appropriate in the light of your own circumstances. Photo credit: jpgfactory/istockphoto. AlertMeSince the beginning of time, people have used a variety of assets (land, gold, livestock, etc.) to store their wealth. This type of asset is referred to as a physical asset, as opposed to a “digital” or electronic asset. Examples of digital assets include money, stocks, and bonds. These assets are created by a company, and the value of the asset is derived from the company’s earnings.. Read more about bitclout crypto and let us know what you think.
Frequently Asked Questions
What is digital assets in Blockchain?
Digital assets and cryptocurrencies are a rapidly growing field where blockchain technology is being used to create new digital assets on the blockchain. While digital assets have no intrinsic value in and of themselves, there is a growing market for their use as a medium of exchange and unit of account. As the major backbone of the digital world today, Blockchain technology is currently growing at an unprecedented rate. Blockchain is often considered to be the next-generation Internet. However, like the Internet, Blockchain technology is often misunderstood. In this article, I will try to explain in simple terms what Blockchain is and how it works.
How do I make a crypto portfolio?
There are a lot of crypto trading platforms out there. Some are simple, some are complex, and some are even a little ridiculous. But there’s one that stands out – it isn’t too complex, it isn’t too simple, and it’s pretty damn excellent. It’s dragol.me. If you have any interest in digital assets and blockchain technology, you’ll probably want to take a closer look. Cryptocurrency is a new investment alternative that can be exchanged for goods and services. It is a digital currency designed to operate without a central authority, such as a central bank. Unlike traditional currencies such as the US dollar, these currencies have no physical form. Cryptocurrencies are stored and exchanged electronically, but can also be stored and exchanged in digital wallets.
Are Cryptocurrencies digital assets?
Cryptocurrency, or digital currency, is a form of online payment that relies on cryptography for security. Cryptocurrencies are well-known and they can be used to purchase goods and services from anyone around the world. It is also possible to use them to pay for individual services, for example if you want to pay a sports coach to train you for a marathon. The most widely used cryptocurrency is Bitcoin, which was created in 2009 and made its first appearance on the market in 2010. Cryptocurrencies are digital assets that have value purely due to computer code, not backed by physical assets. Since cryptocurrencies can be used like money, they are unlike most other assets — for example, stocks, bonds, and real estate. But are cryptocurrencies really digital assets, or are they more like digital cash? That depends on your definition of digital assets and whether a cryptocurrency qualifies as one.
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