Blockchain, probably, is the life-blood of modern digital assets. The DLT technology has been a game-changing force for digital assets for multiple reasons. Blockchain technology assures a safer, more streamlined asset management for digital assets- as well as faster operational efficiency and affordability. Though blockchain is often used interchangeably with cryptocurrency, especially Bitcoin, yet they are not the same thing. Also, cryptocurrency is not the only digital asset today.
The post below offers a clear picture on digital assets, blockchain, and also how blockchain technology is a boon for virtual assets. Read more about the best crypto to buy now
What is blockchain?
Technically speaking, blockchain is a Distributed Ledger Technology. In simple terms, blockchain can be described as a shared public database that keeps record of transactions, guarded by advanced encryption. Now, this blockchain platform is developed on a decentralized infrastructure and hence is not under the control of a centralized authority. Rather, due to decentralized architecture, the blockchain structure is operated by multiple nodes (read computers). Thus, there is always greater transparency across a blockchain network compared to a centralized platform.
It must be mentioned here that the data recorded in a blockchain structure is always time-stamped and immutable. The data once recorded in a blockchain ledger can’t be modified or manipulated.
What are digital assets?
In layman’s terms, digital assets can be defined as an asset that has been developed, stored, and traded virtually. These assets are usually non-tangible assets. When it comes to blockchains, the most common digital assets are cryptocurrencies, crypto tokens, and NFTs.
Cryptocurrencies are electronic cash backed by cutting-edge cryptography encryption. Developed on blockchain networks, they allow P2P transactions over a decentralized architecture. Cryptocurrencies can be used as a means of exchange (for making payments) and as storage of value. As of now, there are 18,000+ cryptocurrencies. Blockchain networks that develop these digital assets can follow either of the two consensus mechanisms- Proof-of-Work and Proof-of-Stake. Bitcoin is a PoW cryptocurrency. Cardano is a PoS cryptocurrency.
They might sound similar but crypto tokens and cryptocurrencies are not the same kind of digital assets. However, they are certainly related- a crypto token and a cryptocurrency might be a part of the same blockchain.
First things first, cryptocurrencies are native digital assets of some blockchain protocol. Crypto tokens, on the other hand, are electronic assets that have been developed by portals created over these blockchains.
Bustling with both native cryptocurrency and tokens, Ethereum blockchain offers the perfect example here. Developed from Ethereum blockchain protocol, Ether aka ETH is the native cryptocurrency of the blockchain. Alongside, Ethereum blockchain allows development of various tokens over the same blockchain network, like, COMP, LINK, CryptoKitties, and so on.
The digital assets of the revolutionary Web 3.0 genre, NFTs are technically described as “non-fungible” tokens. These are the digital assets that are always unique and cannot be substituted. This is one of the main differences between cryptocurrencies and NFTs. Both are digital assets but the former is fungible while the latter is not.
NFTs represent digital versions of almost any kind of creation, ranging from music to art. Each NFT is unique, rare, and exclusive. It’s to note here that all NFT transactions are processed via cryptocurrencies.
Other digital assets
The assets mentioned above are developed electronically and stored or processed digitally only. It means they are all-digital assets on blockchain technology.
But, the definition of digital assets on blockchain is not limited to these above mentioned assets only. In other words, the term “digital assets” could also cover virtual representation of a physical database on a blockchain. For example, when a hospital back office creates a digital record of patients’ databases virtually, it can be termed as “digital asset”.
Why is blockchain technology significant for digital asset operation and management?
Benefit of smart contracts
Smart contracts are one of the most amazing aspects of blockchain technology. These are self-executing digital-based contracts, developed based on condition programming. It means smart contracts would activate transactions between 2 parties when certain pre-set external conditions have been met.
For digital assets on blockchain, smart contracts can help with faster transmission of required documentation, like confirmation of trade, inventory roster, and so on. Smart contracts will also help with automated processing of payments if that has been mentioned in the contract for a digital asset. As smart contracts are embedded in the decentralized infrastructure of blockchain, they can assure faster and more economical processing of funding/documentation for digital assets on blockchain. Thanks to the blockchain infrastructure, the parties involved with the digital asset don’t have to waste time and money on intermediaries or 3rd parties.
Benefit of immutability
As mentioned previously, a blockchain ledger is always immutable and hence the recorded data cannot be modified or manipulated by an external 3rd party. This immutability quotient assures an advanced level of safety for digital assets on a blockchain.
It means, the digital assets on the blockchain cannot be manipulated or abused by nefarious elements. It also means that whatever data you will have about the digital assets on a blockchain will always be authentic and unadulterated. It goes a long way in ensuring the credibility factor of a digital asset. This is one of the main reasons why NFT digital assets are built on blockchain platforms.
However, please be careful while entering any data for your digital assets on blockchain. The same warning is issued while feeding inputs to smart contracts. As the blockchain technology is immutable, if you enter a wrong data, nobody would be able to rectify it.
Reduction of storage costs
Another benefit is that the digital assets on blockchain assure less cost on storage than what it could have taken for physical storage.
Blockchain platforms for digital assets could be primarily of two types- Private and Public. The private ones are for those entities that demand higher-level confidentiality with their digital assets. On the other hand, the public blockchain platforms are open for the public and excellent for those who wish to showcase their digital creations before the wide world.