Money is a means to exchange value. It has come a long way from shells and clay tablets to the complex financial system we have today. But coins, bills, and bank balances aren’t money’s final form — enter blockchain digital assets.
Digital assets are intangible, electronically stored files or information with economic value. Examples include cryptocurrencies, software, domain names, social media accounts, website content, and digital photos.
Blockchain digital assets are a specific subset of digital assets that are built on blockchain technology. In this context, blockchain serves as a transparent and tamper-resistant system for tracking ownership and transactions.
Here, you’ll learn about the nine main types of blockchain digital assets as well as their uses, benefits, and most well-known examples.
Cryptocurrencies are digital or virtual currencies that use cryptography for security. Unlike traditional currencies issued by governments, cryptocurrencies operate on blockchain.
You can buy, sell, and trade cryptocurrencies securely, as transactions are recorded on the blockchain. Cryptocurrencies provide a borderless, efficient, and censorship-resistant alternative to traditional currencies, challenging conventional financial systems.
Here are some examples of cryptocurrencies:
- Bitcoin (BTC) is the first and most well-known cryptocurrency, created in 2009. It operates on a decentralized peer-to-peer network, allowing for secure and transparent transactions without the need for intermediaries.
- Zcash (ZEC) uses advanced cryptographic techniques to provide improved privacy and anonymity for its users.
- Ripple (XRP) is both a digital payment protocol and a cryptocurrency designed for fast and low-cost cross-border transactions.
Stablecoins are a type of cryptocurrency designed to minimize price volatility by pegging their value to a stable asset, often a traditional currency like the US Dollar.
This stability makes them a reliable and popular choice for everyday transactions, such as digital payments and remittances, and as a store of value in the crypto space.
Stablecoins’ popularity grew quickly, surpassing $180 billion in circulating supply at its peak in 2022, compared with $12 billion two years prior. The total circulating supply currently sits at $139 billion.
There are two types of stablecoins — centralized and decentralized. While centralized stablecoins are collateralized by deposits of cash or equivalents, decentralized stablecoins are backed by other cryptoassets held in smart contracts.
Here are some stablecoin examples:
- Tether (USDT) is pegged to the USD and backed 1:1 by US dollars held in regularly audited reserves.
- Dai (DAI) was created on the Ethereum blockchain. Its value is stabilized through a system of smart contracts and collateral, allowing it to maintain a peg to the US Dollar without direct fiat backing.
- STASIS EURO (EURS) is designed to maintain a 1:1 peg with the Euro and is backed by a 1:1 ratio reserve of Euros.
3. Securities Tokens
A security is essentially a contract. Consider a basic stock; if you own one, you have a contractually granted share in an enterprise.
This entitles you to a portion of the cash flow if the enterprise pays dividends, and you may also have the right to vote on certain matters related to the enterprise.
Securities tokens have the potential to transform the stock, bond, and derivatives markets because all these actions can be programmed and automated in a token, making them run more efficiently, inclusively, and fairly.
There are two main types of securities tokens:
- TradFi-issued tokens: Traditional finance entities like asset managers or investment banks create stocks and bonds and record ownership on a blockchain and on an off-chain registry.
- DeFi securities tokens and funds: These are digitally native securities, such as derivatives contracts and DeFi investment funds.
Both TradFi-issued and DeFi securities tokens are subject to regulatory scrutiny under the legal frameworks governing traditional securities.
Here are some examples of securities tokens:
- SPiCE VC tokenizes venture capital investments. Investors holding SPiCE tokens gain access to a share of the profits from a portfolio of startup investments, providing liquidity to traditionally illiquid venture capital assets.
- Harbor tokenizes real estate assets, allowing investors to buy and sell fractions of real estate properties. HBR holders may receive dividends or a share of rental income from the underlying real estate.
- Neufund tokenizes equity in traditional companies, allowing investors to buy and sell shares on the blockchain. NEU token holders have economic rights and may receive dividends from the companies represented in the Neufund ecosystem.
4. Protocol Tokens
Protocol tokens are digital assets tied to a specific blockchain or protocol. Unlike traditional cryptocurrencies like Bitcoin, which serve as Internet cash, protocol tokens give you access, governance, or utility within a blockchain network.
This is because most blockchain protocols were built to run decentralized apps (dapps) and smart contracts. To deploy and utilize dapps on these networks, developers and users must pay transaction fees, normally using protocol tokens.
When utilizing dapp-supporting blockchain networks like Ethereum, you must pay transaction fees, commonly referred to as “gas fees,” in the native token of the respective protocol, which, in the case of Ethereum, is ETH. Similarly:
- Solana transactions incur fees in SOL.
- Cosmos transactions require fees in ATOM.
- Avalanche transactions involve fees paid in AVAX.
- Polygon transactions are subject to fees in MATIC.
5. Governance Tokens
Governance tokens are digital assets that grant holders the right to participate in the decision-making processes of a decentralized autonomous organization (DAO) or protocol.
Owners of these tokens can vote on proposed changes, upgrades, or other governance matters related to the blockchain or DAO. They also get a say in the allocation of resources from its common wallet.
Governance tokens allow a community to collectively steer the direction of a decentralized system, promoting a more democratic and decentralized decision-making model.
Here are some examples of governance tokens:
- Holders of Uniswap’s UNI token get to oversee alterations to protocol logic and decide on the distribution of governance funds.
- Curve DAO uses its CRV token for managing the incentive framework, determining how fees are paid, and establishing the long-term earnings approach for liquidity providers.
- Holders of Compound’s COMP token can weigh in on decisions regarding the inclusion of assets and adjustments to collateral factors, the interest rate model, and more.
6. Exchange Tokens
Exchange tokens are digital assets native to centralized crypto exchanges (CEX). Their value lies in their functionality since users need exchange tokens to use these platforms.
In addition, they improve liquidity and provide rewards, discounts, and other incentives to keep using that exchange.
Exchange tokens are similar to governance tokens of decentralized exchanges (DEXs), but are more centrally managed and don’t offer governance rights.
Still, some view them as a form of “equity in the company” because the platform’s success correlates with the appreciation of your tokens.
Examples of exchange tokens include:
- Binance’s BNB
- OKX’s OKB
- iFinex’s LEO
- Cronos’ CRO
- KuCoin’s KCS
7. Non-Fungible Tokens (NFTs)
Fungible tokens are interchangeable and identical, like money. Each unit is the same, and one unit can be exchanged for another without any difference in value. Examples include traditional currencies like the US Dollar or cryptocurrencies like Bitcoin.
Non-fungible tokens (NFTs) are unique and can’t be exchanged on a one-to-one basis. Each token has distinct information or attributes, making it different from others.
NFTs are used to represent ownership or proof of authenticity for specific digital or physical items like art, collectibles, virtual real estate, and more.
These tokens have gained popularity in the digital art world, allowing artists and creators to tokenize and sell their work, while buyers gain ownership with a verified and unforgeable on-chain certificate of authenticity.
Here are the ten most expensive NFTs to date:
8. Natural Asset Tokens
Natural assets like water, air, and carbon are essential for life on Earth and the economy. However, they’re commonly exploited and overused since there’s no way to control their consumption.
Blockchain allows us to tokenize and govern the use of these assets transparently and verifiably. Natural asset tokens can then be utilized to incentivize the sustainable management of our natural capital.
For instance, a conservation NGO could purchase a plot of land to ensure its long-term protection and divide it into on-chain tokens.
Conservation activists, climate investors, and other people could purchase these tokens to support conservation efforts and potentially make a return on their investment if that plot of land appreciates in value.
For example, Ecosapiens is protecting natural assets and gamifying conservation efforts by selling artwork NFTs backed by CO2.
Another example is Fund the Planet. It sells Rainforest Token NFTs to fund the purchase and protection of swaths of rainforest land.
9. Central Bank Digital Currencies (CBDCs)
A Central Bank Digital Currency (CBDC) is a digital version of a country’s official currency issued by its central bank.
Unlike cryptocurrencies, CBDCs are centralized and government-backed. They serve as digital representations of traditional money, enabling electronic transactions and payments.
CBDCs aim to boost financial inclusion, reduce transaction costs, and provide the central bank with more efficient tools for monetary policy.
Users can access CBDCs through digital wallets, facilitating secure and instantaneous transactions while maintaining the stability and trust associated with traditional fiat currencies.
However, it’s crucial to ensure CBDCs allow for anonymous transactions and preserve user privacy. For instance, there are concerns that China might use its digital renminbi (e-CNY) to monitor how people spend money as part of its social credit scoring system.
As of early 2024, 11 CBDCs are active globally, including Nigeria’s eNaira and Jamaica’s JAM-DEX. Additionally, 21 countries are testing CBDCs, 33 are developing them, and 46 are in the research phase.
Blockchain Digital Assets — Key Takeaways
Blockchain digital assets are revolutionizing our financial landscape, governance structures, and even environmental conservation.
Whether it’s the efficiency of cryptocurrencies, the uniqueness of NFTs, or the transparency of natural asset tokens, these assets are paving the way for a more inclusive and sustainable future.