What is Crypto Assets in Investment and Trading?
Crypto assets are assets that do not require a middleman to buy or sell. They are digital assets that rely on the distribution, autonomy, and reliability of the blockchain.
Technically, blockchain technology eliminates the middleman by relying on a cryptographic ledger system that records every transaction and makes them public. Blockchain takes care of the regulation, creation, and distribution of digital assets on a dedicated network.
Evolution of Crypto Assets
The launch of Bitcoin in 2009 and all other similar innovations that followed suit, such as Ethereum and other altcoins leverage cryptography, deployed on a peer-to-peer (p2p) network, typically regarded as cryptocurrencies are all classified as crypto assets. But as the crypto space matured, there began to be classifications. Presently, crypto assets are broadly classified as cryptocurrencies, utility tokens, securities, stablecoins, privacy tokens, non-fungible tokens, and more.
Why Were Crypto Assets Created?
Crypto assets were created to challenge the traditional system of fiat currencies. They were created to trade them for goods and services as a medium of exchange, just like fiat, and as a store of value like Bitcoin, cushioning against high inflation. Although the aim of using them for payments of goods and services, has shortcomings, as crypto experts and financial experts have pointed out many issues, including high price volatility and banning of crypto assets in some jurisdictions like China.
Classification of Crypto Assets
- Stablecoins
Stablecoins are a class of crypto assets created as digital representations of major fiat currencies such as the dollar and the Euro. Stablecoins backed by the dollar carry the same value as the dollar, and those backed by the Euro also have the same value as the Euro. Popular examples include USDT, USDC, DAI, BUSD, and others.
- Utility tokens
This class of crypto assets refers to coins or tokens created with the aim of starting a new crypto project. They are used to raise the required capital for such projects. They are usually associated with crowdfunding and most find themselves in a regulatory gray area.
- Security tokens
Security tokens are a class of crypto assets that represent the transfer of ownership to a blockchain token. They are subject to SEC’s regulations and are primarily considered to be shares. A common example is NEXO.
- DeFi Tokens
Decentralized Finance (DeFi) tokens are for short, refers to those minted by DeFi protocols, which are programs run entirely on a public blockchain and powered by smart contracts. Common examples include UNI, CAKE, GENS, SOL, and more.
- Privacy Tokens
These refer to those crypto assets created to enable privacy for users. They are designed with a built-in privacy feature. Such crypto assets are ZCash, Dash, Monero, etc.
Where to Buy Crypto Assets
Crypto assets can be exchanged for fiat or vice versa on peer-to-peer (p2p) platforms such as Paxful. They can also be traded on both decentralized and centralized exchanges like Coinbase or Uniswap. However, as a rule of thumb, newbies should consider first buying their choice crypto assets from a centralized exchange because it is easy, fast, and these platforms support fiat currencies.
