Module 82.2: Digital Asset Characteristics

Question 1

What are the differences between digital assets and traditional financial assets?

Answer 1

Inherent value differences: Digital assets are not backed by underlying assets, so prices are determined by asset growth and ability to transfer value in the guture
Transaction vlidation: Recorded on decentralized digital ledger
Medium of exchange differences: Traditional assets are traded in global fiat currencies, whereas digital assets are used
Regulatory differences: Lack well defined standards - some regulators in US consider them to be commodities, whereas other consider them to be nonfinancial assets

Question 2

What is a centralized exchange?

Answer 2

Privately held trading platform for price transparency and volume informatrion

Traders exchanges trade on private serves, which can introduce security vulneterabilities

Question 3

What is a decentralized exchange?

Answer 3

Implement decentralized blockchain principles - attacks on these are more difficult

Question 4

What is direct investment in crypto

Answer 4

When a transaction is validated and recorded on the blockchain

Question 5

What are the risks associated with crypto?

Answer 5

Fraud: Market Manipulation, theft, access to wallet credentials
Losing passkeys to crypto wallets
Whales that can influence smaller cryptocurrencies

Question 6

What are ways to indirectly invest in crypto?

Answer 6

Crypto coin trusts: Shares in a trust that hold cryptocurrency, although can be expensive
Crypto futures: Volaatile and less liquid
Crypto ETP
Crypto Stocks: Buying stock of companies that invest in crypto, accept it as payments
Crypto hedge funds:

Question 7

What is an asset backed token?

Answer 7

Represents digital ownership of physical assets or financial asssets
Benefits: Improve Transpatency
Reduces Transaction Costs
Classified as Securities