Cryptocurrency is no doubt the most trending digital currency thing today. However, there are many risks associated with it. In this article we will be demystifying the crypto assets as well as the threat which it is posing in the capital markets. So, keep reading the article to know more.
Crypto Assets:
Crypto assets are just like the cryptocurrencies. They are the NFTs and the tokens which are past emerging and they are definitely here to stay. Blockchains allow crypto assets to operate. The Blockchains offer a method for securely recording information on a peer-to-peer network. It is just like a public database, which is duplicated across many computer systems. It can be added but there are existing entries which can also be altered. The blockchain entries are called blocks. These are primarily generated via specific protocols that differ from blockchain to blockchain. So, a digital asset is basically created and minted. It is new information that is added to a particular blockchain. Through this blockchain, the users will be able to exchange digital assets and will also be able to create newly minted ones
Now that you all have got a good understanding of the digital assets. Head to the next section of the article to know about the different types of digital assets.
Types of Digital Assets:
Folks, in this section of the article, we will be discussing some of the different types of digital assets. So, keep reading to explore!
Stable Coins:
This is the first type of crypto asset that is common in the capital markets. This is a type of cryptocurrency that is designed for price stability. You will find that stablecoins are linked to flat currencies and commodities or other crypto assets. You can easily use Stablecoins for:
- Foreign Exchange
- Payments
- Cross-border payments and transfers
Non-Fungible Tokens (NFTs):
These are digital assets, which are crypto types that represent the ownership of a digital item. You can think of a work, a government ID, or a specific unit of production. With the Non-Fungible Tokens, you will find that they certify that the holder will own the underlying digital assets, which will be capable of selling, trading, or redeeming them. You can use NFTSs for:
- Tokenizing your supply chain for tracking the inventory movement as well as ownership
- Ownership of virtual items such as games, avatars as well as virtual land
- For proving your identity as well as granting access (This can be either to virtual or physical space)
Central bank digital currencies (CBDCs);
This is a type of digital asset that primarily represents the nation’s flat currency. The most amazing thing about this digital asset is that it is backed by the central bank. It is important to know that not all nations will be issuing the CBDCs. One can use CBDCs for the following:
- Cross-border payments and transfers
- Payments
Security Tokens:
This is another kind of digital asset that is used to meet the definition of security or financial investment. You can consider security tokens like stocks and bonds. One can use the security tokens for the following:
- Can be used as the token versions of real-world assets like property, real estate, plant, and equipment, among others
- Token versions of the stocks, which are the equity and the bonds
Folks, these are the different types of digital assets, and they can be used for a number of purposes such as for payments, investments as well as for creating a coin for funding a project
Want to know where the digital assets are stored? If yes then head to tehnext section of the article to know more!
Digital Assets Storage:
Folks, one of the main points to keep in mind is to store digital assets. Digital assets are primarily stored and recorded on the blockchain ledger, where they are mostly issued. You can think of your ledger entry as the public or the private key which is associated with it and you can think of it as a computer-generated email address or a password. Wallets are the ones that help store your keys securely so that only you can access your digital assets, and they give you a convenient place to view your assets and ledger positions. So, the primary difference between storing blockchain assets and storing them is that the digital assets are stored in the blockchain while the keys for its access are stored in the wallet.
Crypto Threat to the Capital Market:
Ever since the emergence of cryptocurrencies, they have been the target of many criticisms and acceptance alike. However, with the developed market regulations as well as the legitimizing of cryptocurrencies, there is a threat that is lingering on the capital market. At the SEBI-NISM Research which was held on March 13, there have been many concerns which were raised regarding the downside of investing in cryptocurrency.
As the experts deliberated on the cryptocurrency debate, there are many concerns that have been raised by the experts at the conference. Developed nations of the US, UK, and Europe have been legitimizing the crypto, and the investors have been looking at them as a hedge. One of the experts at the conference deliberated on this thought. There have been many deliberations made at the conference regarding the legitimacy of crypto, and one of the most important highlights of the crypto industry in the conference has been the thought about the developed countries’ economies that have been legitimizing crypto. Here, a significant amount of savings goes to the main investors who are going into that, and that takes a significant pool of resources away from the capital formation. Significantly hampering the capital market.
Further Discussions at the Conference:
In the words of Mr.Kotak, “We have to be clear in terms of policymaking and regulation,” Further when the comparison between the equity markets and crypto emerged, Ashish Chauhan, the MD and the CEO of BSE deliberated on it, saying that in the equity sector, there is a promise which of profits which can be taken from the dividends but when it comes to the crypto market, there is no such promise. There have been additional concerns which have been raised in the conference apart from the capital market, the negligence of people in knowing about the crypto market, and how there are many who have invested in the crypto market without knowing about the crypto assets, capital market, and trading in general.
If people were more vigilant about the crypto industry, they would know that 30 percent of Bitcoins are not accessible to their owners. In another incident, one of the crypto investors lost about half a billion dollars just because he couldn’t remember his password. So, instances like this are very scary and make people question the safety and security of cryptocurrencies.
Earlier this week, in a statement issued by the Securities and Exchange Board of India (Sebi), Chairperson Madhabi Puri Buch said that instantaneous settlement in the regulated securities market is essential in competing with asset classes that include cryptocurrency, which offers instant liquidity and other conveniences.
Is Investing in Crypto Risky?
Well, what can be understood from the capital market threat is that investment in crypto has to be done with a sound mind and after knowing all the intricacies involved in the crypto business. People who are looking at the profit side of it are just looking at one aspect of crypto. They must be more alert about the losses and risks that are associated with the trading business. Hence, it is important to know about the details of the crypto business and its value in the market today.
Conclusion
Crypto is a budding business and with many countries legitimizing the cryptocurrencies, it will soon be becoming more relevant in the market. However, many associated risks must be talked about more to spread a sound awareness about the crypto business and its effect on the capital markets. Only then people will be interested in these kind of investments. That’s all, folks. I hope the article will help you to get all the information you need.
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