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What are digital assets? Investing Explained

INVESTING EXPLAINED: What you need to know about digital assets, which are intangible, yet considered valuable

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In this series, we break through the jargon and explain a popular investment term or theme. Here it is digital assets.

What are they?

They are assets that are not tangible, but are nevertheless considered to have a value.

The two best-known categories are cryptocurrencies, such as bitcoin and ether, and NFTs (non-fungible tokens).

This can be any digital creation, such as a piece of music or a work of art.

Warming up: Bitcoin is the best-known 'crypto', traded so much that at the peak of the market, this activity consumed as much electricity as Argentina did in a year

Warming up: Bitcoin is the best-known ‘crypto’, traded so much that at the peak of the market, this activity consumed as much electricity as Argentina did in a year

Billions have been spent on some art NFTs, some of it through Sotheby’s and other auction houses. They are non-functioning because they are unique and cannot be replaced.

Bitcoin is the most well-known ‘crypto’, traded so much that at the peak of the market, this activity consumed as much electricity as Argentina did in a year.

Blockchain is the “distributed ledger” technology underlying NFTs and cryptocurrencies. instead of keeping the information about the sale or purchase of a digital asset in a single database, it is distributed in a secure and decentralized manner across a network of computers called nodes.

Have the prices not fallen?

Yes, to the chagrin of those who have gambled with their savings. Mid-summer, NFT sales fell off a cliff. This has not diminished the focus on the potential of digital currencies and blockchain technologies at central banks, financial institutions and governments.

For example, the US Federal Reserve is considering introducing its own digital currency. These are different from cryptos like bitcoin, which are not backed by a central bank.

Crypto prices, which peaked in November last year, have been hit by a number of factors, including the war in Ukraine, higher interest rates and a series of industry scandals such as the high-profile bankruptcy of US crypto moneylenders Babel Finance and Celsius Network.

The price of bitcoin may have fallen by 44 percent since January, but lately this crypto has recouped some of its losses. Ether also recovers to some extent.

The Bored Ape NFTs — images of cartoon monkeys looking bored — were a celebrity favorite, selling for millions in the fall of 2021. But the prices of these works of art fell in line with the decline of cryptos.

Why the interest in blockchain?

The system provides a way to carry out cheap, secure and fast money transfers.

A number of banks, including Santander, are already using the blockchain-based payment network Ripple. Ripple’s mission is to “build breakthrough crypto solutions for a world without economic borders.”

Fund management groups believe that blockchain technologies will provide the foundation for how funds and stocks will be traded in the future. This month, Abrdn became the largest shareholder in Archax, a digital securities exchange, brokerage and custodian regulated by the Financial Conduct Authority.

Stephen Bird, Abrdn’s chief executive, says blockchain technologies will “inevitably be a big part of the future of financial markets.” The surge in interest in digital assets can also be seen in the decision of BlackRock, the US manager, to offer a bitcoin fund to its institutional clients.

Is Now the Time to Buy Cryptos?

These currencies are only for those who can afford to lose their entire stake and have a penchant for speculation.

However, you would want the people who manage your money to support the most lucrative blockchain projects.

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