The meaning of digital assets has morphed over time from commonly known digital items (e.g. data, images, video, audio files, etc.) to a broader definition that includes entities that can be created and/or stored using blockchain technology, are verifiably unique, and can be used to generate value.
Digital assets now include different cryptocurrencies, non-fungible tokens (NFTs), crypto assets such as utility or security tokens, and more. While trading crypto is one of the most common ways to invest in digital assets, there are many options to choose from.
What Is a Digital Asset?
Putting aside IRL forms of digital assets that can be created and stored on devices (e.g. text, images, video, audio), the real innovation in digital assetry began with the birth of blockchain technology.
Blockchain technology is a decentralized, transparent, append-only digital ledger that can be used to track or record almost any type of asset, from goods and services to patents, smart contracts, decentralized apps (dApps), and more.
Blockchain technology relies on cryptography and a system of peer-to-peer verification, or consensus mechanisms, to secure transactions and, in the case of cryptocurrency, to mine coins and tokens.
Although most people think cryptocurrency is synonymous with blockchain technology, in fact blockchain technology is increasingly common for a range of digital products and functions — especially the creation and storage of digital assets.
Types of Digital Assets
Broadly speaking, most digital assets fall into two general categories:
2. Cryptographic tokens
There are thousands of different types of cryptocurrency beyond Bitcoin (these are often referred to as altcoins). As of August 12, 2022, some of the top crypto include:
• Ethereum (ETH)
• Binance Coin (BNB)
• Ripple (XRP)
• Tether (USDT)
• Solana (SOL)
• Cardano (ADA)
• Polkadot (DOT)
• Litecoin (LTC)
In general, though, crypto digital assets are decentralized forms of currency; they exist on a blockchain platform, and are secured by either a proof-of-work (PoW) consensus mechanism (which involves mining), or a proof-of-stake system (PoS), where users lock up or stake some of their coins in order to become validators.
Of the many types of crypto, the vast majority have emerged from new projects. But some are hard forks from existing blockchains (e.g. Litecoin launched in 2011 after a hard fork from Bitcoin).
Others are stablecoins, meaning they’re pegged to a fiat currency like the dollar, euro, or yen, and aim to keep a 1:1 value with that currency.
💡 Interested in crypto? Learn the basics with our Crypto 101 Guide.
Tokens are digital assets that can serve a variety of purposes on a blockchain platform. One of the most common types of tokens is known as a utility token, which is a token that serves a specific function within a blockchain ecosystem.
For example, as blockchain technology has advanced and the DeFi space (decentralized finance) has grown, users typically need utility tokens native to each platform to execute certain functions on that platform.
One common example is how ERC20 tokens are used on the Ethereum platform to pay for goods and services (e.g. dapps and smart contracts).
Another example of a utility token would be the Basic Attention Token (BAT). BAT is the native token of the Brave web browser, which is built on Ethereum and seeks to protect users’ privacy with a new advertising model.
There are even digital assets for social networks that reward users in the form of crypto when they create and curate quality content, like Steemit does with the STEEM token.
Digital Assets in Marketing
These days, with so many types of digital and blockchain-based digital assets, many organizations have come to rely on Digital Asset Managers (DAMs).
DAM cloud software plays a vital role for businesses that need a way to catalog and store all the various forms of data and media relevant to that company, including images, video and audio files, social media, as well as cutting-edge material like VR and AR.
In particular, marketers make use of DAM software in order to manage the brand’s entire library of digital assets, to streamline online and offline channels.
Digital Assets in Investing
Perhaps the most important aspect of digital assets for investors is that each one is unique and stored on a blockchain, therefore they provide a form of real world value that can rise and fall like any other asset (e.g. stocks, bonds, mutual funds).
Digital assets present a range of new opportunities for investors. Not only can you buy and sell the many forms of crypto, you can trade NFTs, stake tokens, and more.
Legacy markets have certain limitations that crypto markets in general and digital assets in particular may help solve, especially in regard to cross-border transfers, minimum capital requirements, and the availability of certain asset classes. Because digital assets are decentralized, meaning they are created and stored without the need for middlemen, there are new possibilities for all market participants.
Virtual Assets vs Digital Assets
Virtual assets predate digital assets, in the sense that the acquisition and trading of virtual assets has been core to the online gaming industry for years. It’s important to note however that virtual gaming assets could not be traded in a liquid market initially, whereas the digital asset market allowed for limited liquidity trading.
History of Blockchain Digital Assets
The Bitcoin white paper, also known as the Satoshi Nakamoto white paper, was published on October 31, 2008. About two months later, on January 3, 2009, the Bitcoin network went live, the first Bitcoin was created, and a new asset class (cryptocurrency) was born thanks to the emergence of blockchain, a peer-to-peer, decentralized technology that would soon change the world.
While the pioneering Bitcoin protocol helped establish the market for crypto digital assets, it wasn’t long before developers and entrepreneurs seized on the potential of blockchain technology to innovate in the DeFi space.
In 2015, the Ethereum network launched (following a 2013 white paper). From the start, Ethereum was meant to build on Bitcoin’s foundation. It was built as more than a form of crypto, but rather a programmable blockchain platform with the capacity to support smart contracts, dapps (decentralized apps), and other DeFi projects.
Ethereum and other like-minded projects that emerged around the same time revolutionized how blockchain was used and how digital assets were formed.
Pros and Cons of Investing in Digital Assets
How should investors consider the various opportunities in the digital asset space? Here are some advantages and disadvantages.
Bitcoin allows people to become their own bank. When storing assets at a traditional bank or other financial institution, an individual becomes vulnerable to the risk of that institution going bankrupt or mismanaging their funds. This risk is known as counterparty risk.
Because digital assets and crypto are mainly decentralized, they can eliminate counterparty risk.
By holding their own private keys in a crypto wallet, investors can have total ownership of their digital assets and cryptocurrency. Other than gold or silver, no other asset has this quality.
Bitcoin has been the best performing asset class of the last decade by far. During eight of those years, the returns from holding Bitcoin exceeded that of any other asset in the world. (That said, as with any investment past performance is not an indication of future performance.)
Cryptocurrency can diversify an investment portfolio in a way no other asset class can. Crypto is known as a “non-correlated asset,” meaning it tends to have little or no correlation to other traditional securities (although this has changed at times and is no guarantee of future performance).
While all investing carries risk, investors often fail to factor in the one risk inherent in every investment denominated in fiat currency (stocks, bonds, mutual funds, ETFs, etc.): Inflation risk.
The law of supply and demand dictates that when the supply of something increases, its price will decrease absent an equal or greater increase in demand. With central banks creating tens of trillions of new currency units in recent years, some investors have begun looking toward digital assets and cryptocurrencies that have fixed supply limits, like Bitcoin.
It should be noted that the only cryptocurrencies that can serve as viable inflation hedges are those that have a fixed supply. Like gold, scarce commodities tend to increase in value during times of inflation.
In addition, global uncertainty and turmoil tend to increase demand for safe haven assets.
Digital assets can be extremely volatile, whether you’re talking about the ups and downs of cryptocurrencies or the value of NFTs.
In addition, while digital assets can be considered secure because they are created and stored using decentralized technology and peer-to-peer verification systems, the reality is that when blockchain networks are hacked, those digital assets are at risk. Also, many scams are built around fake digital assets.
The market for digital assets is largely unregulated. Investors have to proceed with caution, verifying procedures, and networks, in order to avoid losses.
Digital Assets and Risk
As noted above, the vast majority of altcoins are highly speculative in nature. Most have small market capitalizations of less than $1 billion or even less than $100 million, so their prices can swing dramatically in short periods of time due to a lack of liquidity. And in the long run, it’s not unheard of for altcoins to drop to zero, meaning investors lose everything.
Bitcoin might be a little different because it has the most secure network (due to having the highest hashrate), the longest track record, and the largest market cap by far. Still past performance is no guarantee of future results, so it’s important for crypto investors to understand the risks inherent in investing in digital assets.
Best Practices for Investing in Digital Assets and Cryptocurrency
Anyone considering investing in digital assets and cryptocurrency would do well to educate themselves on related subjects.
The more a potential investor familiarizes themselves with crypto terms like bitcoin halving, bitcoin forks, and how crypto exchanges work, the less confusing this type of investment will seem.
Due to the volatile nature of digital assets and cryptocurrency, one possible investing strategy is dollar-cost averaging. Rather than trying to time the markets, investors can buy fixed dollar amounts at certain intervals. An example would be an investor setting a recurring buy for an automatic purchase of $50 worth of crypto every two weeks.
Investing in Digital Assets With SoFi
Digital assets is a broad term. It has morphed over time from more tangible digital items like text and images to a definition that includes entities that are created using blockchain technology. Unlike tangible digital assets, today’s digital assets generate real-world value and are an asset class unto themselves.
Digital assets not only include cryptocurrencies and non-fungible tokens (NFTs), but also crypto assets such as utility or security tokens, and more. Trading these assets comes with certain risk factors, but considering how new this area is, there are also many opportunities for investors.
If you’re ready to start trading crypto assets, why not start by opening a crypto trading account with SoFi Invest. From there, it’s easy to set up a crypto trading account and trade dozens of different coins and tokens, starting with as little as $10. SoFi doesn’t offer staking or a crypto wallet, but you can trade crypto 24/7 from SoFi’s secure app.
The information provided is not meant to provide investment or financial advice. Also, past performance is no guarantee of future results.
Investment decisions should be based on an individual’s specific financial needs, goals, and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC registered investment advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal. Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or prequalification for any loan product offered by SoFi Bank, N.A.
Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.
2Terms and conditions apply. Earn a bonus (as described below) when you open a new SoFi Digital Assets LLC account and buy at least $50 worth of any cryptocurrency within 7 days. The offer only applies to new crypto accounts, is limited to one per person, and expires on December 31, 2023. Once conditions are met and the account is opened, you will receive your bonus within 7 days. SoFi reserves the right to change or terminate the offer at any time without notice.
First Trade Amount