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Introduction to Crypto Assets
What are Crypto Assets?

Crypto assets are purely digital assets that use public ledgers over the internet to prove ownership. They use cryptography, peer-to-peer networks and a distributed ledger technology (DLT) – such as blockchain – to create, verify and secure transactions. They can have different functions and characteristics: they may be used as a medium of exchange; a way to store value; or for other business purposes. Crypto assets generally operate independently of a central bank, central authority or government.

A distributed ledger is a type of database that stores electronic records shared and replicated across many locations and maintained by members of this decentralized network. Each new transaction must be agreed upon by all members of the network before it is added to the ledger. Blockchain is one type of distributed ledger that arranges the data in chunks and chains them together. This unique way of structuring data gives blockchain transactions additional security as they are irreversible. Blockchains can be used to store many types of data but have recently become popular for their use of storing cryptocurrency transaction history.

Some of the more common types of crypto assets you may encounter are:

Cryptocurrency

Cryptocurrency (or virtual currency) is likely the most well-known type of crypto asset.

Cryptocurrency is a digital currency or medium of exchange.

It can be used:

  • To exchange for products or services, like fiat currency.
  • For speculative purposes, such as trading on a crypto asset trading platform (CTP)
  • As a store of value

It was created as an alternative to fiat money, but cryptocurrency is not considered legal tender in many jurisdictions.

Cryptocurrencies have no inherent value; their perceived value is based largely on supply and demand in the market.

Examples include:

  • Bitcoin,
  • Ether,
  • Ripple and
  • Litecoin

However, there are many more!

Cryptocurrencies are generally not considered to be securities and, therefore, are generally not subject to securities laws.

Utility Tokens

A utility token uses a distributed ledger or blockchain platform to provide access rights to a specific product or service (potentially one that is still in development), or to be used to purchase specific products or services. The provider of the products or services typically issues the tokens, which can only be used within the issuer’s network.

Security Tokens

Security tokens are often sold or auctioned in an Initial Coin Offering (ICO) or an Initial Token Offering (ITO) that allows businesses to raise money to fund an idea or business model. The business offers security tokens in exchange for fiat money or other crypto assets. The security token often comes with a stake in the project and additional benefits, such as voting rights, profit sharing or dividends. However, a project may not succeed, and investors should remember they are putting their funds toward supporting an idea of a business model – not a fully realized product or service.

Non-Fungible Tokens

Non-fungible tokens (NFTs) are tokens that exist on a distributed ledger or blockchain, which record ownership of a unique tangible or intangible object – such as a song, a digital image, a video, designer clothing, etc. Non-fungible means these tokens cannot be exchanged for one another; each one is unique. NFTs are relatively new, even for crypto assets, and the regulatory scheme and marketplace for NFTs are rapidly evolving.

Stablecoins

A stablecoin is a digital currency that is pegged to a “stable” reserve asset like the U.S. dollar or gold. Stablecoins are designed to reduce volatility relative to unpegged cryptocurrencies like Bitcoin.