It appears there is some confusion regarding cryptocurrencies and digital assets. While one could argue every cryptocurrency is a digital asset in its own right, the two differentiate themselves in the way they are managed. There are quite a few differences between the two types of financial tools, although it is not hard to see why they would get confused with one another either.
2. Digital Assets
Looking at the definition of a digital asset, it is not hard to see why they would be confused with cryptocurrencies. A digital asset exists in binary format and offers a right to use. A digital asset can range anywhere from motion pictures to documents and any other type of data one can think of. These assets are often stored on digital appliances, including computers, mobile devices, media players, and anything else one can think of.
In a way, every cryptocurrency in the world can be labeled as a digital asset. However, not every digital asset is a cryptocurrency. An excellent example of this confusion comes in the form of XRP, which many people wrongfully classify as a cryptocurrency. It is a digital asset stored on a distributed ledger, but that is as far as the correlation with cryptocurrency goes.
XRP, in his case, can only be used on the Ripple Consensus Ledger. Even then, it is not required to be used for any transaction taking place on this ledger either. The value of a digital asset is often derived from the organization they are linked to. A higher demand for such an asset often increases its value. However, the control surrounding access and transferability of these assets is maintained by individual companies.
Most people are all too familiar with the way cryptocurrencies work. These currencies also increase in value as they are used more often and for multiple purposes. Without Bitcoin being used to buy goods or services, there would be little value to the currency whatsoever. This is also why alternative cryptocurrencies often struggle to gain traction, as their subtlety is mostly limited or nonexistent.
Every cryptocurrency is issued on a blockchain, whereas digital assets can be issued on a distributed ledger or any other type of medium. Moreover, cryptocurrencies allow the owner to be in full control at all times, thanks to the public and private key system associated with cryptocurrency wallets. Digital assets are often somewhat “protected” by overarching entities, reducing the control the owner has over them to some degree.
Most cryptocurrencies are known for their decentralized aspect. This is particularly true for Bitcoin and all other prominent alternative cryptocurrencies in existence today. They also use different timestamping services, which are not present where digital assets are concerned. Moreover, most cryptocurrencies have a supply limit, whereas digital assets could – in theory – be created indefinitely if needed. It is evident these two types of stored value are very different from one another, and should always be treated as such.
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