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Introduction
Assets, in common financial terminology, are representative of a value that can be held and exchanged between investors in order to obtain from it a profit or a periodic return on the initial investment. Digital Assets are nothing more than digital representations of existing assets, exchangeable between two or more counterparties.
The introduction of blockchain technologies has led to the creation of digital assets operating on distributed ledgers based on cryptographic protocols. These digital assets are called Crypto Assets.
Crypto Assets are therefore Digital Assets that use blockchain technology in order to guarantee counterparties unique characteristics deriving from the underlying cryptographic protocols.
Generally speaking, all Crypto Assets are Digital Assets just like all Cryptocurrencies. This means that Cryptocurrencies are essentially Digital Assets, but with some unique characteristics.
Cryptocurrencies therefore represent a valid example of a Digital Asset to analyse: mainly designed to be used as a non-centralized medium of exchange and not dependent on any central authority, over the years they have proven to be valid tools for the “reservation of value” (store of value).
The application of Blockchain technology, in fact, guarantees these digital assets important unique characteristics, including:
- the certainty of the uniqueness and validity of the transactions
- the presence and recording of transactions on a digital register distributed and accessible to all users
- the elimination of the double spending problem of the same asset, defined as the “double spending problem”.
Differences between Crypto Asset and Token
Another important example of Crypto Asset are Tokens.
Usually Cryptocurrencies and Token are used as interchangeable terms but, in reality, the two tools differ substantially.
To understand the differences it is necessary to go back to the definition of Cryptocurrency: electronic money based on blockchain, or on other distributed ledger. In fact, every cryptocurrency, to exist, must therefore have its own transaction register. Generally, once the Blockchain is created, the corresponding Tokens are issued, i.e. those assets that can be effectively traded and divided between the various counterparties involved in the transactions.
With the introduction of the Ethereum ecosystem as a “programmable” Cryptocurrency, and the consequent creation of smart contracts (protocols operating on the Ethereum blockchain) it was possible for anyone to create and issue their own personalised tokens. Therefore, a precise distinction has been created between Cryptocurrencies with their own register (Blockchain), such as BTC (Bitcoin), DOT (Polkadot) and ETH (Ethereum) and “programmed” Tokens that need a register (Blockchain) of third parties in order to work.
Therefore in a nutshell:
- A Cryptocurrency is a Token that uses its own Blockchain.
- A Crypto Token is a cryptographic asset with its own characteristics, and determined by a smart contract, which uses a third-party Blockchain.
Following the possibility of programming Tokens with different characteristics, various types of identifiable Crypto Assets have been created:
| Types of Crypto Assets | ||
|---|---|---|
| Subgroup | Features | Value |
| Cryptocurrency | Cryptocurrencies are digital assets that operate on the blockchain. They move independently from central authorities. | Its value is based on supply and demand |
| Asset-backed token | An asset-backed token is a digital token that operates on a blockchain. Its value derives from something that does not exist within the blockchain. The value is represented by the ownership of a real world entity such as oil, diamonds or gold. | Its value derives from the activities of the underlying assets. |
| Utility token | Utility tokens are digital tokens running on a blockchain that provide future access to a product or service. Utility tokens provide ownership of the product or service, although holders can change these tokens. | Its value derives from the demand for the product or service. |
Security & Token, Security Token
A very particular and significant category of tokens for the traditional financial community are security tokens.
Although at the moment their adoption and usability is not significant, Security Tokens are the only Crypto Assets designed to “Tokenize” (transform into tokens), the different types of securities, recognized and regulated by the various financial and governmental authorities such as, by way of example:
- equity securities and representative shares of corporations
- debt securities issued by public, government or private authorities
- property rights and options.
The implementation and adoption of Security Tokens could, in fact, bring countless advantages typical of the Blockchain, and allow important innovations on traditional financial markets. However, as anticipated, the traditional banking and financial community has not yet started serious development and investment activities in order to encourage adoption. It follows that these instruments, with the related STO (Security Token Offering) purchase offers, remain an interesting project still in the launch pad.
Most significant cryptoassets by capitalization
In order to allow a simpler and, at the same time, concrete identification of the various types of Crypto Asset described in the previous paragraphs, we set out below, data and characteristics of the most important types of Token.
The aim is to illustrate the characteristics of the two best known and most capitalised cryptocurrencies, from which the whole crypto economy originated.
We will then present one of the main stablecoins anchored to the dollar, USDC, which from a technical point of view represents a Token, as it works on different Blockchains Ethereum, Stellar, Algorand and Solana.
Lastly, we will conclude with Polkadot, one of the most innovative networks that allows interconnection between different primary and secondary Blockchains.
BitcoinClick to view live data and market capitalization.Live Data HereEthereumClick to view live data and market capitalization.Live Data HereUSDCClick to view live data and market capitalization.Live Data HerePolkadotClick to view live data and market capitalization.Live Data Here
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BITCOIN: created in 2008 by a team with the pseudonym Satoshi Nakamoto, is the cryptocurrency operating on the blockchain of the same name. It allows the validation and processing of economic transactions, effectively creating a peer-to-peer payment system that is totally decentralised and alternative to conventional ones.
BTCs (Bitcoin tokens) are issued by the blockchain as a reward for the computational “effort” of the miners, who contribute to the maintenance of the infrastructure and ecosystem, validating transactions by solving complex mathematical calculations.
The total supply of BTC is set at 21 million, and every four years, through a process called halving, the number of BTC generated by the blockchain is halved, creating scarcity over time and endowing the cryptocurrency with inflationary power. From the 50 BTC issued for each block mined in 2008, it went to 25 in 2012, 12.5 in 2016 up to the current 6.25 from May 2020. This mechanism will allow us to reach the maximum threshold of 21 million Bitcoins in about 120 years, with the last Bitcoin estimated for 2140, after which cryptocurrency will no longer be issued and only the BTCs on the market or fractions of the same can be exchanged.
This intrinsic characteristic determines, as mentioned, a natural inflation in the value of the cryptocurrency which since 2008 has seen its price increase by over 8,500,000%, from the initial $ 0.00076 to the maximum price of $ 64,000. Currently Bitcoin is certainly the most representative cryptocurrency in the world with a market dominance of over 45%.
ETHEREUM: is the best known smart contract platform on the market. The protocol allows to program and issue tokens and decentralised applications called Dapps. Vitalik Buterin, founder of Ethereum, wrote the first whitepaper in 2013 and the first version of the Blockchain was launched on July 30, 2015. Co-founders include Gavin Wood, Charles Hoskinson and Joseph Lubin.
The main innovation introduced by Ethereum is the ability to execute smart contracts on its own blockchain. Smart contracts are programs that automatically and slavishly execute predefined instructions to the point of having created the neologism “code is law”. In addition to smart contracts, the Ethereum blockchain is able to host not only the ETH governance token, but also other tokens. This feature is guaranteed by the ERC-20 tokens. Currently over 40 ERC-20 tokens appear among the most capitalised coins in the market, such as USDT, LINK and BNB.
On August 5, 2021, the EIP 1559 update (Ethereum Improvement Proposal) was introduced, in order to make the protocol more efficient and start a process to reduce the platform fees. A very important evolution of the protocol is currently underway which will aim to radically change the consensus mechanism from Proof of Work to Proof to Stake. The consequences will be revolutionary: in fact, the issue of new ETH will no longer take place through the traditional mining process using GPUs but through a stacking mechanism: it will be necessary to have a minimum amount of 32 ETH in order to mine new ETH tokens.
USDC: Created in September 2018 from the collaboration between Circle and Coinbase, USD Coin (known by its USDC ticker) is one of the main players in the stablecoin market. Its function is to “tokenize” the US dollar and stabilise the very high volatility of the crypto markets. In fact, USDC is fully pegged to the dollar in a 1: 1 ratio, meaning each unit of currency in circulation is backed by $1 which is held in reserve, through a portfolio of short-term US cash and Treasury bills. This implies a strong stability for the currency, as at any time it is possible to exchange 1 USDC for 1 US dollar.
Regarding the uses of USDC, it can be said that, in addition to ensuring safety for cryptocurrency traders in times of volatility, it can also enable companies to accept payments in digital assets and shake up a range of industries, including decentralised finance and entertainment. Thus, USDC is the bridge between dollars and cashless transactions, with the aim of creating an ecosystem in which the token is accepted by as many wallets, exchanges, service providers and dApps (decentralised applications) as possible.
Despite the rapid growth of the stablecoin market and its crowding, USDC has established itself as one of the most important tokens. One of the reasons for this success is certainly the transparency and security that the token offers, ensuring that the liquidity levels in reserve are always sufficient to allow the exchange of 1 token for $1. Also, unlike other crypto initiatives, USDC gives more certainty, as its founders, namely Circle and Coinbase, have achieved regulatory compliance and are well funded.
POLKADOT: is a network created in 2017/18 by the Swiss Web3 foundation, which aims at the total decentralisation of the Internet.
Unlike the Bitcoin Blockchain, which uses a Proof of Work (PoW) system for block validation, Polkadot uses a Proof of Stake (PoS) system, i.e. a system in which validators bind their DOT tokens by receiving other tokens as interest.
In particular, Polkadot uses the Nominated Proof of Stake (NPoF), a new version of PoS, in which it is possible to prevent the formation of groups of preferential validators that have a greater number of DOTs staked or that are designated by other users, through a filtering algorithm that equally divides the votes to be awarded.
Polkadot is often referred to as “the Internet of Blockchains” thanks to the interconnection between different blockchains guaranteed through its network consisting of the main blockchain, called Relay Chain, and secondary blockchains called Parachain.
The latter are proprietary blockchains, which can also issue their own token, but are obliged to provide data on transactions and blocks to the Relay Chain through the intermediation of so-called “collators”. In addition to the Parachain, which can be accessed through two-year auctions, there are the Parathreads that require a fee payment linked to the issue of the blocks. The Parathreads allow to reduce the barriers to entry for developers who do not need a continuous connection with the network.
