In the past few years, cryptocurrencies have been hitting the forefront of many investors’ minds. Digital securities are beginning to take a backseat as some digital assets offer some very promising returns. However, it is prudent to know exactly what you’re investing in and how they work as with any investment. This article focuses on the difference between digital assets and digital securities.
Digital assets are similar to commodities in that they are fungible, divisible, transferable, and immutably recorded on an electronic ledger. A centralized authority or institution does not control these assets. For example, Bitcoin is a digital asset that can be transferred between peers on the Bitcoin blockchain.
- They are easy to verify and track.
- They can appreciate without the requirement of regulatory approval.
- Unlike securities, their price is not dependent on supply and demand.
- They can be designed to be censorship-resistant and private by design.
- It’s difficult to verify the initial supply of digital assets is legitimate, i.e., they weren’t created through a fraudulent process or weren’t already in existence before their launch.
- Many digital assets offer little value, such as “a cure for cancer” (this may be due to an energy cost most people don’t consider).
Digital securities are similar to traditional securities, where a token-like certificate represents ownership on a blockchain. If an individual has one of these digital certificates, they are automatically granted the same rights as the underlying asset. For example, if you own stock in BP, you are entitled to voting rights and dividends paid out by BP.
- They are cheaper to issue than traditional securities.
- They promote transparency and equality of information.
- They provide anonymity for individuals that do not wish their transactions on the blockchain to be associated with their legal identity or resident country of residence.
- They are easier to verify the initial supply of digital securities is legitimate, i.e., they weren’t created through a fraudulent process or weren’t already in existence before their launch.
- They increase liquidity within the market, encouraging increased participation.
- Even though they are cheaper to issue, they still cost money to create and maintain. With 80% of venture capital dollars going toward seed-stage startups today, the investment burden will likely continue to increase over time for digital securities.
- Although decentralized, they do not follow the same regulations as classical securities (such as exchange listing requirements).
What is the difference?
When you compare the two asset types, it becomes clear that they are very different in their design.
- Tokens are, in essence, an Internet of Things (IoT) system, where data can easily be transferred and verified between multiple parties.
- Tokens run on a blockchain, and the underlying protocol is responsible for transferring and validating the data.
- The value associated with these tokens is derived from the asset they represent and not based on any inherent value within itself.
- Some people believe that digital securities will replace cryptocurrencies as the new ICO standard. This may happen, but there is no evidence of such a change taking place at this time.
- Until the digital securities industry creates its cryptocurrency and token, it will likely remain a niche market.
What are their similar features?
Digital assets and digital securities are based on the same technology to represent ownership. Using this technology is relatively simple: tokens can be compared to Bitcoin, Bitcoin Cash, Ethereum, EOS, Litecoin, and other cryptocurrencies. Digital securities are more similar to stock certificates that represent ownership in a company or entity.
Are digital assets worth investing in?
Today, many people own Bitcoin and other digital assets without knowing how it’s applied or what they’re good for. Many people have simply become lost in the hype of cryptocurrencies instead of being aware of their actual utility.
Digital assets are not a currency; they are merely an investment tool to track ownership over digital assets. It is always best to check out why you are buying into a new asset before deciding whether or not it’s worth investing in. If you’re just looking to speculate on the next pump-and-dump, please do not invest in digital assets.
Why do we need digital securities?
In this day and age of financial markets, it is difficult to find a way to invest that does not involve traditional financing. Collective trust has been shaken due to the economic collapse, which has left many investors skeptical toward the financial system at large.
- The recent emergence of cryptocurrencies has helped to loosen up public influence on blockchain technology. It brings an alternative source for investors low-cost intermediaries invest in a decentralized, low-cost platform and offers greater transparency.
- Digital securities are, in effect, a digital token that allows individuals to invest in real-world assets without the need for expensive middlemen.
- By removing the middleman, investors can reduce their fees and make more profit when compared to investing in traditional markets.
- With the help of blockchain technology, the upcoming ICOs are poised to be disruptive technologies in the investment world.
- The concept of digital securities is particularly appealing for startup entrepreneurs who want to attract investments without taking out loans or giving up equity stakes.
What does the future hold?
Digital securities may be the solution for many issues that plague the investment market today. With the help of technology, we may finally see a more decentralized and safer investment platform. The future of the digital securities trading solution is bright, and it’s only a matter of time before we see large-scale investments like WePower or Market Watchers make their mark on the blockchain.
In this article, we have discussed what digital assets and digital securities are, the benefits of each structure, and how they differ from one another. We touched upon the differences in processes that create a more decentralized investment platform. The future of digital securities is bright, low-cost intermediaries and it is only a matter of time before we see large-scale investments like WePower or Market Watchers make their mark on the blockchain.