Cryptocurrencies are complex, unregulated, without consumer or financial protections. Capital gains tax may apply. Prices are volatile; only risk what you can afford to lose.
As more and more people get excited about crypto trading and investing, it’s common to begin to wonder just what crypto is. One of the questions that comes up frequently is whether crypto can be considered a digital asset, in the same way that digital music, photos and documents are.
To answer the question, we’ll need to take a look at what it means for something to be a digital asset. From there, we can discover whether or not crypto fits the definition and why.
What is a digital asset?
At a basic level, a digital asset is any asset that exists in a digital format and comes with a right to use it. At a more detailed level, we might say a digital asset is anything that exists in the form of binary data. It is self-contained, uniquely identifiable, and has a value or ability to use it.
Importantly, data that lacks that usage right is not considered a digital asset. Digital assets include common things like digital documents, digital music and digital photos or videos. In general, digital assets are stored on digital appliances including computers, portable media players, tablets, data storage devices or mobile phones. But importantly, they can also be stored in data centres or in more distributed ways.
Is crypto a digital asset?
According to the definition above, most people would agree that crypto is a type of digital asset. After all, it is self-contained as tokens or ‘coins’, it has a value, and people certainly have the right to use it.
Let’s take a closer look at crypto. A common definition would be: cryptocurrency is a digital asset designed to work as a medium of exchange. Individual coin ownership records are stored in a distributed ledger, using cryptography to secure transaction records, control the creation of additional coins, and verify the transfer of coin ownership.
In other words, crypto certainly is a digital asset. However, unlike other digital assets, it is not stored in a single place, but rather in a distributed way, via ledgers. That might sound complicated, but if you’ve bought crypto, you can keep track of your precious digital assets easily using handy tools like a Skrill wallet.
How blockchain technology changed how we think about digital assets
Blockchain technology hasn’t changed the meaning of what digital assets are. But it has meant that the term ‘digital assets’ now covers a far broader range of things than it once did.
Essentially, by changing the way in which data is stored (decentralised instead of centralised), crypto is changing the way we think about how we handle and track our other digital assets.
It’s true to say that cryptocurrencies are part of the digital asset revolution.
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