Definition

Lesson

Digital assets are digital representations of value that can be traded, stored, or used for investment purposes. They include cryptocurrencies, tokens, and other digital representations of value.

Practice Question #1

Which of the following is NOT a type of digital asset?

A) Cryptocurrency

B) Token

C) Mutual Fund

D) Non-Fungible Token

Select an option above to see an explanation here.

A) Cryptocurrency is a type of digital asset. B) Token is a type of digital asset. C) Mutual Fund is a traditional investment vehicle, not a digital asset. D) Non-Fungible Token is a type of digital asset.

Terms

Digital Asset:: A digital representation of value that can be traded, stored, or used for investment purposes.
Cryptocurrency:: A digital asset that uses cryptography to secure transactions and control the creation of new units.
Blockchain:: A decentralized digital ledger that records transactions across multiple computers.
Token:: A digital asset representing a specific use case or utility within a blockchain ecosystem.
Initial Coin Offering (ICO):: A fundraising method startups use to issue new digital tokens in exchange for cryptocurrencies or other digital assets.
Smart Contract:: A self-executing contract with the terms of the agreement directly written into code.
Decentralized Finance (DeFi):: A financial system built on blockchain technology that operates without a central authority.
Non-Fungible Token (NFT):: A unique digital asset that cannot be exchanged one-to-one with another digital asset.
Digital Wallet:: A software application that stores private and public keys, allowing users to send, receive, and store digital assets.
Exchange:: A platform that allows users to trade digital assets for other digital assets or fiat currency.

Practice Question #2

What is the primary difference between a cryptocurrency and a token?

A) Cryptocurrencies are backed by physical commodities, while tokens are not.

B) Tokens represent a specific use case within a blockchain ecosystem, while cryptocurrencies are a general form of digital currency.

C) Cryptocurrencies are issued by governments, while tokens are issued by private companies.

D) There is no difference between cryptocurrencies and tokens.

Select an option above to see an explanation here.

A) Physical commodities typically back neither cryptocurrencies nor tokens. B) Tokens represent a specific use case within a blockchain ecosystem, while cryptocurrencies are a general form of digital currency. C) Governments do not issue cryptocurrencies, and tokens can be issued by various entities, including private companies. D) There is a difference between cryptocurrencies and tokens.

Historical Example

In 2017, a digital asset known as Bitcoin experienced a significant increase in value, reaching a peak of nearly $20,000 per coin. This event brought widespread attention to the world of digital assets and sparked a wave of new investments and innovations in the space.

Practice Question #3

Which of the following is a key feature of decentralized finance (DeFi)?

A) Reliance on intermediaries such as banks and financial institutions.

B) Operation without a central authority.

C) Use of fiat currency as the primary form of value.

D) Limited accessibility to digital assets.

Select an option above to see an explanation here.

A) Decentralized finance (DeFi) aims to reduce reliance on intermediaries. B) Operation without a central authority is a crucial feature of decentralized finance (DeFi). C) Decentralized finance (DeFi) typically uses digital assets, not fiat currency, as the primary form of value. D) Decentralized finance (DeFi) aims to increase access to digital assets.

Real-World Example

A popular digital asset exchange, Coinbase, allows users to buy, sell, and store digital assets such as Bitcoin, Ethereum, and Litecoin. Users can access their digital wallets through a mobile app or website and easily trade digital assets with other users on the platform.