Since beginners often ask what a digital asset is, in this article we take a look at this concept and how it is related to cryptocurrencies. The concepts used in cryptocurrency are numerous and sometimes a very simple one can slip by and cause doubt.
A digital asset is anything that has value and which can be stored in digital media. A MP3 song that you purchase via some online store is a digital asset. A nice photo you take using your camera is a digital asset. You may ask then, is any kind of content stored in digital media considered an asset? Remember, to be an asset it must provide some value.
For example, virus that is lodged on your hard drive is not a digital asset, it’s a digital liability if we’ve ever see one! Irrelevant or useless files containing no value aren’t assets in any context. They may become assets, for example, to a forensic police officer who’s looking for traces in a computer system. Then the usually irrelevant files could become valuable. Therefore it brings us to another important point about digital assets: the perceived value is in the eye of the beholder and depends on context. A worthless file to you could prove to be gold in another context.
In day to day use, when we refer to digital assets, it usually means one of these:
- Software (Games, Office Software, etc)
The common use for the term digital asset refers to something you pay for online. But, as we’ve seen, the concept is much broader and depends on context. “Value” is not always directly tied to an amount of money paid for the asset, but as we’ve seen, is related to its utility to the user at any given time. It can be easier to visualize if we ask ourselves a simple question such as: “would I pay for that useless log file in order to save my hard drive?”. If your hard drive were to fail without a file that you could usually ignore, then the file has just acquired value and you’d definitely pay for it. In this context, the log file is a digital asset.
Keep in mind, though, that the term usually refers to digital stuff you can buy online.
Cryptocurrencies are a class of digital assets, in fact they’re usually called crypto assets which is short for cryptocurrency-related digital assets.
Bitcoin is the most popular, and currently also the most valuable cryptocurrency, but several other digital assets exist in the crypto category. For example, ICO tokens represent shares in a startup project or established organization that has decided to capitalize using this crowdfunding system. Tokens are a kind of digital asset that gains or loses value according to the performance and achievements of the organization backing it. Bitcoin, on the other hand, has no centralized commercial organization behind it and its value derives from future expectations about this revolutionary new form of money, not on the market performance of any given company. ICO tokens and coins therefore serve different purposes and are different categories of crypto assets.
In summary: digital assets include anything with value that can be stored in a digital medium. Crypto assets are a subcategory of digital assets and include cryptocurrencies which themselves can be categorized into several different types such as ICO tokens, standalone blockchains, complementary cryptocurrencies and many other taxonomies.
Illustration Credit: geralt