In the mid-1990s, “digital assets” originated as a term encompassing items such as audio, video, images, and documentation. In the decades since, technological advancements have expanded the term’s use to cover a broader range of items. One technology in particular, blockchain, plays a critical role in the rapidly digitizing global economy. You can think of blockchain as a metaphorical asphalt road that many types of digital vehicles use.
While bitcoin is the most common digital asset on blockchain, and probably the one you have heard most about, it is not the only investable asset operating on blockchain technology. The popularity of blockchain technology has evolved the use of the term “digital assets” to now include three categories to be familiar with:
- Digital store of value assets
- Decentralized internet or “Web 3.0” assets
- Digitized payment assets
Digital store of value assets
Historically, society has sought the time-tested reliability of gold as a safe, durable economic store of value. Investors look to gold in times of market stress as a “flight to safety” to preserve wealth and protect against inflation in the financial system. Bitcoin shares many of the same attractive properties of gold that have made it a great store of value for centuries. Yet, bitcoin has modernized and improved attributes that position it as an attractive complement to gold in a digital world.
Originally conceived as a peer-to-peer electronic cash for the Internet, bitcoin has become a next-generation store of value. Bitcoin is resistant to political censorship or interference and governed by the mathematical principles of its open source code. Built on a long history of technological advancements in computer science, cryptography, and digital scarcity, bitcoin's disinflationary nature is designed to facilitate trust-minimized, peer-to-peer transactions without a centralized intermediary in a highly secure and transparent way.
Decentralized internet or "web 3.0" assets
The current Internet infrastructure (known as Web 2.0) resulted mainly from the explosive growth of smartphones. That quickly led to increased demand for mobile computing by the centralized applications built on top of mobile operating systems. By definition, most successful Web 2.0 companies are merely applications with pleasant user interfaces atop databases that aggregate vast amounts of user data and benefit from sharing and selling this data to undisclosed third parties.
Web 3.0 improves upon this legacy system by enabling the self-sovereign ownership of individual user data and reconstructing the base layer's rules to make things more open and decentralized. By building from the ground up, these new digital asset protocols create a more efficient operating system for the next iteration of the Internet.
Ethereum (ETH) is one example of investable digital assets that are enabling the early success of Web 3.0. It serves the function of a base layer (Layer 1) validator platform that enables secure general-purpose computing and smart contract logic.
Digitized payment assets
Across the world, cash is slowly getting phased out for more virtual forms of money stored online in the form of a digital wallet or token. While people in the United States still primarily purchase goods and services with credit cards and cash, in China, payments are now dominated by WeChat and AliPay QR readers, using digital assets to conduct transactions.
The idea that alternative means of global value exchange are now possible via digital tokens has led to increased innovation and competing platforms. The ability of public blockchain networks to settle immense value across borders 24/7 is unprecedented in the history of money, positioning these technologies to look much more attractive relative to legacy financial infrastructure.
Digital payment tokens such as Litecoin (LTC) and Bitcoin Cash (BCH) will continue to be a large area of growth in digital assets. Litecoin prioritizes efficiency and intends its usage for more common transactions than a long-term store of value. Litecoin’s faster transaction speed and ability to produce more coins than bitcoin makes Litecoin an attractive digitized payment asset to investors.
There has also been a significant increase in the use of USD stablecoins in cross-border payments, for a global settlement of value, and remittances, especially in emerging economies where people send money to their families or in places with capital flow restrictions.
Rapid asset digitization
Digitization is accelerating rapidly, and digital assets enable investors to participate in different areas of this technological progress. It is tough to predict what the digital world of the future may look like, and no one can say with absolute certainty which investments or assets will emerge victoriously. Bitcoin has a significant head start as the leading global store of value alternative to gold. Other digital assets are still competing to become market leaders in their respective categories, including the next generation of Web 3.0 assets and digital payment assets of the future.