What is a Digital asset?
Most simply explained digital assets are a form of digital money. digital assets come in many shapes, but we need to explain the first digital asset ever created, Bitcoin, to explain everything better.
What is Bitcoin?
Bitcoin was the first cryptocurrency created and released in January 2009 by someone under the pseudonym “Satoshi Nakamoto.” Satoshi Nakamoto has released a whitepaper for the world’s first decentralized electronic cash called Bitcoin that would allow people to send payments back and forth and across country borders without the involvement of third-party intermediaries such as banks.
Until today, Bitcoin still stands as the world’s most famous and most valuable cryptocurrency.
Bitcoin’s price is an indicator of the direction of the overall cryptocurrency market. Simply worded, Bitcoin is to cryptocurrency what S&P500 is to the stock market. Since we mentioned that cryptocurrencies come in many shapes and forms, the following type on our list is altcoins.
What are Altcoins?
Altcoins is the name used for all the other digital asset coins that are not Bitcoin. The most popular among them is Ethereum. Altcoins differ in many ways, including their technology, features, and price. Some of the additional more popular ones are USDT, Dogecoin, Polkadot, Matic, Chainlink, etc.
What is Ethereum?
Ethereum is the second-largest digital asset. Nowadays, it’s widely considered that Bitcoin’s primary purpose is to transfer and store value. Ethereum kicks this up a notch. On top of the transfer and store of value, it has created a platform that allows people to build open-ended decentralized software called decentralized applications or Dapps. An excellent example of a dapp is a decentralized exchange (DEX), something which we will mention later down the road.
Decentralized applications have been made possible by using Smart Contracts. Smart Contracts are pieces of programming code that self-execute when certain conditions are met.
The best example of them working is a vending machine analogy. If the money in the machine is equal to the price of a chocolate bar, then unlock and drop the chocolate bar. If not, keep the chocolate bar locked. If there is more money than the price of the chocolate bar, drop the chocolate bar and return the change. Smart Contracts are programs that replace third-party intermediaries, primarily humans, thus allowing us to build decentralized, censorship-resistant software on Ethereum.
What are Stablecoins?
To use digital assets as a traditional means of payment in everyday life, we need far more price stability than what regular digital assets can currently offer. This is where stablecoins come into play. Stablecoins are crypto coins pegged 1 for 1 with a particular fiat currency like USD or EUR. That means you can deposit $300 and exchange them for 300 tokens of a specific stable coin. The most popular stable coin to date is called USD Tether (USDT). It’s one of the stablecoins that follow the value of USD. Stablecoins are essential for keeping the digital-economy stable because they enable cross-border transactions while maintaining price stability.
What is an Asset Wallet?
Basically, it is a digital equivalent of a bank account that allows storing, sending, and receiving assets. Digital asset wallets have two essential components: a public key and a private key. The public key is a wallet address to which anyone can send you coins. The private key is both a login and a password used to access your currency.
What is an Asset wallet address?
A wallet address is an alphanumeric code. This public identifier is used to transact on the blockchain. The formats of the addresses differ depending on the currency.
How do I get a wallet?
There are many great digital asset wallets on the market – to get an address, you should choose the service that suits you best. You can check the website of the currency you would like to hold to see the wallets supporting
Where to store your digital assets?
Once you have bought your digital asset, you need a wallet to store it. You have a couple of options for this — Hot wallets, Cold wallets, and Digital assets Exchange wallets.
Hot Wallets are essentially software wallets. You can either use them as browser extensions (e.g., Bitpay, Wallet | Coinbase, Trust wallet, Metamask) or download them on your computer or phone (e.g., Exodus). These wallets give you complete control over your digital asset and keys but are connected to the Internet, so they are at risk of getting hacked.
Cold Wallets are hardware wallets. These are physical devices that you plug into your computer when you want to use them and transact with your digital assets. Popular examples of these are Ledger and Trezor wallets. They are not connected to the Internet like Hot Wallets, so the risk of getting hacked is minimal. They, too, give you complete control over your digital assets and keys.
Digital Exchange Wallets fall into the category of Hot Wallets, but they are more secure. When you buy digital assets on an exchange website, you can leave it in the exchange’s wallet. The difference between these and regular Hot Wallets is that the Exchange usually controls the keys of those wallets, and if the exchange is not secured correctly, there are risks of them getting hacked. However, most digital asset exchanges keep funds in cold wallets, and only a tiny portion required for daily liquidity is kept in hot wallets. Thus, the risk of losing funds kept on an exchange or broker app has been greatly reduced.
Every wallet has a pair of public and private keys. You can consider these as the most crucial security layer of a crypto wallet. A public key is something everyone can see, and the address where people can send crypto to your wallet is created from the public key. On the other hand, a private key is something only you can see, and it acts as a signature for all your transactions, meaning that when you send money, the transaction is signed by a private key and approved by you. If you lose your private keys, you can lose all your money. it.
How To Create An Asset Wallet?
The answer to this question depends on what type of wallet you will choose.
If you choose a hardware digital asset wallet, you must purchase it first. Then you will need to follow all the steps indicated in the attached instructions to install software and connect the device to your PC or laptop.
If you have chosen a hot wallet you just need to download and install the application or register the wallet on the corresponding website.
Basically, there are the following steps in registering a digital asset wallet:
- Creating an account: login, password, and other important data to protect the wallet.
- Saving the seed phrase (optional).
- Opening a new digital asset wallet, adding additional protection (optional).
Why are digital assets the Future?
Many people say that the arrival of digital assets and blockchain technology will change the world, similar to the Internet in the 90s. As a matter of fact, it has already started. To illustrate this better, we need to take a short walk through the history of the Internet. In the early stages of the Internet, users could only consume content and not much more than that, and we called that phase Web 1.0. An example of that is a blog, which you can only read, and that is it.
Then with the arrival of social media, we have transitioned to user-generated content, which allowed people to interact with websites, create and share content online and have their own web pages. This was called and still is Web 2.0.
Finally, we have a new revolution with digital assets and the blockchain called Web 3.0. The main idea of Web 3.0 revolves around decentralization, freedom of speech, and giving users complete ownership of their data. This means that companies like Google or Facebook cannot store your data on their servers without or share it without your permission, giving you complete privacy on the Internet, which is censorship-free.
Alongside the fight over data control and censorship, digital assets and the blockchain offer better technological solutions to many world’s industries, such as banking, by providing faster and cheaper transactions between individuals and companies without the involvement of third parties. Prime examples are that nobody can stop you from using digital assets and blockchain transactions, and nobody can decide to block your bank account one day because you are your bank and 100% owner of your money. Then we have cross-border transactions available 24\7 and much cheaper than standard bank transactions. These are just a couple of many advantages.
How to Manage Risk of Crypto Investing
Do not Invest Money you Can’t Afford to Lose: This goes without saying, but the best for your wellbeing or overall calmness when investing in a currently speculative asset like crypto is only to invest money that you do not care if it disappears the next day. Some people tend to borrow money to invest in digital assets, hoping to make great returns, but then they do not profit and end up losing everything and just creating a bigger headache for themselves than needed.
- Don’t Invest Blindly:
When investing in cryptocurrencies, the best way to be 100% sure that it is a quality asset is to do your own research about it. That means exploring who created it, what the future roadmap is, project economics, etc. Diversify Your Investments As Warren Buffet would say, never put all of your eggs in one basket. This means that you should diversify your portfolio into more than one coin/project. If you diversify your digital asset portfolio, you protect yourself if something goes wrong. If, for example, one project in your portfolio starts losing value, that means that you won’t lose all of your money but rather only a small portion of it since you are diversified in more projects.
- Have an Exit Strategy:
Always have a goal for why you are investing. This will help you fight off greed and potential losses in the future. Knowing how much return you want to make and when you need the money will make it easier to track and monitor your portfolio instead of just investing and risking losing everything because of greed.
