What are Digital Assets?

Pros and cons of digital assets

There are quite a few benefits of digital assets, but they also have their fair share of drawbacks. Here are some of the biggest advantages of digital assets – specifically, decentralized digital assets:

• Cryptocurrencies provide a way to store and transfer funds without relying on financial institutions or governments.
• Many cryptocurrencies are a highly efficient digital currency option, able to process transactions in seconds for a fraction of a cent.
• NFTs are a record of ownership that work with any digital asset.
• NFTs also give content creators a way to make money from their work by selling it.
• Both these digital assets have the potential to be profitable investments, although they also carry substantial risks.

Here are the most notable downsides:

• They can be extremely volatile. Cryptocurrencies and NFTs are considered high-risk investments for this reason.
• The digital asset market is full of scams. For example, people frequently launch cryptocurrency pump-and-dump schemes and mint plagiarized NFTs with assets that aren't theirs.
• There are often allegations of insider trading related to cryptocurrencies and NFTs.

If you decide to invest in cryptocurrency or NFTs, doing plenty of research is a must. There are quality projects out there, but you'll also run into lots of scams and cryptos that have no real utility.

Digital asset examples

We've looked at what digital assets are and the different categories, so now let’s check out some specific examples of well-known digital assets:

• Bitcoin (BTC +1.33%) was the first cryptocurrency. An anonymous founder created it in 2009 as a decentralized electronic payments system.
• Ethereum was the first blockchain network to have smart contract capabilities. This helped it become the second-largest cryptocurrency in the world.
• USD Coin (USDC +0.00%) is a stablecoin designed to maintain a value of $1. It's used by those who want to keep savings in cryptocurrency while avoiding volatility. However, it's worth mentioning that stablecoins don't have the same protections as the U.S. dollar, and some have failed.
• CryptoPunks was one of the earliest successful NFT collections. Created by a two-person studio in 2017, the CryptoPunks collection has 10,000 unique digital avatars.
• Decentraland (MANA +0.41%) is an early example of the metaverse, which is a virtual world built on the Ethereum blockchain where players can participate in activities and buy virtual land.

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How to manage digital assets

Decentralized digital assets are managed using wallets. These wallets provide private keys to assets stored on the blockchain, so if you have cryptocurrency funds or an NFT, you use your wallet to access them.

With cryptocurrencies, there's a bit more flexibility regarding how you manage them. Most crypto apps and exchanges let you keep cryptocurrency on the platform after buying it, so you don't need to move it to a wallet. However, many crypto enthusiasts recommend transferring your funds to your own blockchain wallet to ensure that you're in full control of your cryptocurrency.

NFTs, on the other hand, need to be stored in NFT wallets. When you buy or mint an NFT on an NFT marketplace, it's stored in the wallet you provide.

Although this all might seem complicated, many of the best NFT wallets are also blockchain wallets that can store cryptocurrency. So, although you can have separate wallets if you want, you can also store any crypto and NFTs you buy in the same place.

Digital assets are exciting, and, during bull markets, investors have poured money into them. As previously mentioned, these are very high-risk investments, so it's best to take a cautious approach. Consider making digital assets a small part of your portfolio, but don't bet the farm on them.