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 use cases, benefits, and most well-known examples.
Cryptocurrencies are digital currencies that use cryptography for security. Unlike traditional currencies issued by governments, cryptocurrencies operate on a blockchain.
You can buy, sell, and trade cryptocurrencies securely, as transactions are recorded on-chain. Cryptos provide a borderless, efficient, and censorship-resistant alternative to traditional currencies, challenging conventional financial systems.
Here are some examples of cryptocurrencies:
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.
Stablecoins’ popularity grew quickly, surpassing $180 billion at its peak in 2022, compared with $12 billion two years prior. The total market capitalization 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:
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:
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:
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:
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 their 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:
Exchange tokens are digital assets native to centralized crypto exchanges (CEX). Their value lies in their functionality since users need to 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:
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:
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.
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, ensuring CBDCs allow for anonymous transactions and preserve user privacy is crucial. 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 are revolutionizing the 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.
Also published here.