The Rise Of Digital Assets: What You Need To Know To Get Started

Over the last decade or so, we’ve seen digital assets and crypto in general start to become more mainstream in conversations. But what actually are they and why are people talking about it? Here’s what you need to know to get your journey started.

Examples Of Digital Assets

Digital Assets are a digital representation of an online value that is not a part of any government or bank, and aren’t even recognised as currency or money. Most of the time, they are accepted as payment in a private transaction, but they can also be used as an investment tool.

These assets come in the form of cryptocurrency, or security tokens. Sometimes, they can also be considered under a crypto-security. These three digital assets are often considered the main examples.

Of course, aside from the financial side of digital assets, anything that is primarily sourced from online or the internet can fall into the same category. That includes videos and even PDFs, as they can still hold valuable information, or be unique. The main pulling point for digital assets, is that they are a one of a kind, which is why NFTs have become valuable recently.

How COVID-19 Sped Up Crypto

The popularity of crypto had been steadily increasing over the last decade, but none more so than the rise over the last year. Due to the impact of the pandemic, many retailers and stores in general started to refuse physical cash, due to safety concerns.

This introduced a whole new range of people to contactless type of payments, and even led to some big retailers and banks accepting crypto as a payment method. One big trend was using crypto marketplaces to sell your gift cards in exchange for crypto. All of these things would have been years away if not for the closure of physical stores.

Why Ethereum Is Starting To Dominate

Whilst Bitcoin dominated the headlines in terms of the rise of cryptocurrencies, it’s hard to know how successful crypto would be today without Ethereum. You can think of Ethereum as a smart computer, that is capable of running specific high-end programs known as smart contracts.

Smart contracts are, as you’d imagine, the digital version of regular contracts. In most cases, they are enforced by a code using the Ethereum blockchain network, meaning that there is no intermediary that is needed to help perform credible transactions.

These contracts are running automatically, and use digital signatures known as keys in order to utilise a transaction. Ethereum is more unique compared to other crypto coins and tokens, as it is mainly used as a creative tool to create new decentralised applications, known as dApps.

So, you can purchase the digital coin known as Ether, in the same sort of way you can purchase Bitcoin. Ether uses the blockchain for validation of a transaction, which aims to rewards miners with Ether when they complete a solid block.

You can use the coin in the same way as Bitcoin, but usually in a quicker way, due to the number of transactions you are able to complete.

Yield Farming Explained

This is one of the newest innovations within the crypto world, and it primarily refers to the strategy of placing crypto temporarily towards a start-up, in the hope that it will earn its owner extra cryptocurrencies.

It primarily means you’re placing your crypto assets into another hands, with the aim for it to return with even more. If it helps, you can think of it as a traditional investment opportunity. Where you place your money into a stock where it then can turn a profit in a successful business and return with more.

Yield farming in particular is about moving its assets to pools which offer the best annual percentage yield week to week. With any sort of investment, there are risks and rewards that come with it, and you’ll have to weigh these up to work out if it’s worth your crypto.

Once your assets are placed into a service, then they will get a token back, almost like a traditional receipt as a proof of transaction. You would then take this token to a liquidity pool, which uses an index fund to rebalance, and look for small amounts of profit.

The recent crave for liquidity mining has meant that yield farming has become more popular, as more liquidity mining means those that partake in yield farming will get a new token as well as their usual return, as a return on the liquidity that the investor offers.

Consider using Unagii to make the process of yield farming easier than ever. This DeFi yield platform enables auto-pilot faming, allowing you to effortlessly grow your digital asset portfolio. It’s a great way to get introduced to yield farming, and enjoy yielding your digital assets with ease.

To sum yield farming up, it can be described as locking up your specific cryptocurrencies, with the aim of getting a reward. The concept is fairly new, but it’s rising in popularity.

DeFi Explained

You may have seen the word DeFi mentioned a few times in this article. It will help if you have some understanding of the term. Essentially, it stands for decentralised finance. This means that DeFi covers financial services that are mainly utilised on the blockchain.

The blockchain has no central authority. Which means although it uses some sense of elements from more traditional financial systems, it had no middle man. With normal financing services, there was a business that would handle transactions and take on the burdens, for a small percentage fee.

Originally, PayPal looked to dominate this market, by being the middle person with little to no fees, but after the banking crisis of 2008 that affected the world, new opportunities arose in the digital space.

For DeFi to work, they need to be able to run independently, through some sort of decentralised infrastructure. One of the main ways you can do this, is by using the crypto known as Ethereum. This unique blockchain, as mentioned before, enables the creation of other crypto tokens, and other decentralised digital applications in general.

Its main purpose is for trading and exchanging without any intermediary, as well as being available as a lending platform in some cases. There’s even a new market evolving, known as a prediction market. These allow members to gamble and bet on the outcome of prices within investments.

For example, you could bet on the price of gold falling or rising, cryptocurrencies or just economies in general.

How Digital Assets Will Be Used In The Future

In the future, we will start to see digital assets used more commonly in the retail sector. In fact, we will even see digital assets considered in the same breath as physical assets, such as property.

Already, we have seen some big companies, such as Tesla, purchase over $1.5 billion in Bitcoin to hold it as an asset. Some lenders and estate agents have even started to accept high amounts of Bitcoin as an asset when it comes to paying a deposit and proving equity.

This trend will only grow, and it’s possible that in the next decade, that crypto and digital assets will have become the mainstream currency of the internet.

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.