What Are Digital Assets?

Digital assets are transforming the global financial system by leveraging blockchain technology to ensure secure ownership and transactions through cryptography and decentralized consensus. Once a niche movement, this new asset class has grown into a multi-trillion-dollar industry, encompassing a wide range of applications, including cryptocurrencies, tokenized real-world assets (RWAs), non-fungible tokens (NFTs), and more.

In this post, we explore digital assets, their benefits, and how the Chainlink standard is driving a digital asset boom in finance.

Digital Assets Explained

Digital assets are items of value that exist in digital form. While the term digital asset traditionally referred to items that exist in the digital world, such as documents, images, video, and audio stored in a digital format, with the advent of blockchain technology, digital assets now commonly refers to a new class of onchain assets that exist within decentralized digital systems.

Digital assets leverage blockchain and distributed ledger technology, which provide secure, transparent, and decentralized systems for managing ownership and transactional records. As such, digital assets offer trust-minimization, censorship resistance, enhanced security, and transparency—addressing many of the limitations associated with traditional asset management systems.

Types of Digital Assets

The applicability of blockchain technology as a general-purpose technology for tracking ownership on a decentralized ledger helped create many categories of digital assets. These can be fungible or non-fungible, crypto-native or tokenized, and programmed with capabilities previously not possible.

The potential for asset tokenization is enormous, with the total market opportunity estimated at $867 trillion. With onchain value currently representing several trillion dollars, the vast potential to digitize more assets into its superior onchain format has created the conditions for a digital asset boom.

Some common digital asset categories include:

• Cryptocurrencies: Cryptocurrencies like Bitcoin are onchain-native assets that function as a store of value, medium of exchange, and/or currency—depending on how people choose to use them. They represent a revolutionary new asset class made possible by the invention of Bitcoin by Satoshi Nakamoto.
• Tokenized real-world assets (RWAs): Digital tokens representing physical and traditional financial assets, such as currencies, commodities, equities, bonds, and more. Stablecoins are the most widely adopted form of tokenized assets, giving a global pool of users access to digital versions of the US dollar and other fiat currencies.
• Non-fungible tokens (NFTs): NFTs are unique digital tokens with one-of-a-kind identifiers that set them apart from other blockchain tokens. They can represent art, media, collectibles, and other digital-native assets, enabling innovative ownership and distribution models.
• Central bank digital currencies (CBDCs): CBDCs are state-issued digital currencies that use blockchain or other related technologies to create digital-native versions of fiat currencies. They aim to combine the security and transparency of blockchain with the stability and trust of government-backed money.
• Security tokens: Security tokens are natively issued onchain and represent ownership in real-world assets, such as equity, debt, or real estate. These tokens are designed to comply with regulatory requirements while leveraging blockchain’s transparency and other advantages.

Key Characteristics of Digital Assets

Digital assets are the foundational building blocks of the onchain economy. As more assets are digitized through tokenization or issued in a digitally-native form, a growing number of economic processes can operate on the shared infrastructure of blockchain technology. By ensuring security and transparency, blockchain unlocks new possibilities for the global financial system while addressing the limitations of traditional systems. Here are some key characteristics of digital assets:

• Security—Digital asset transactions are secured by advanced cryptography inherent to blockchain technology, ensuring robust protection against tampering with transactional records.
• Transparency—Publicly accessible ledgers ensure traceability and transparency of transactions, or selective transparency between multiple parties. This traceability also helps decrease systemic risks in the financial system, as the record of who-owns-what-when isn’t as easily obscured.
• Decentralization—Digital assets are stored on distributed networks, some of which can be decentralized, so the reliance on centralized databases is reduced.
• Immutability—Transactions are tamper-proof and permanently recorded onchain.
• Programmability—Smart contracts enable extensive programmability, such as automated actions based on predefined conditions, leading to deterministic outcomes for all parties involved.
• Liquidity—Digital assets enable enhanced liquidity through faster markets and a common substrate for trading and settlement.

The Role of Chainlink in Digital Asset Innovation

The Chainlink standard has played a pivotal role in the evolution of digital assets. By initially providing secure and reliable infrastructure to power the emerging decentralized finance (DeFi) ecosystem with high-quality data, the Chainlink standard is now being adopted by the largest financial institutions in the world as the standard for connecting the traditional financial system with the onchain economy.

Chainlink is a set of standards for the asset servicing need of any onchain use case:

• Cross-chain interoperability—CCIP facilitates the seamless movement of data and value between any public or private blockchain and traditional systems.
• Market and data feeds—Data Feeds provide ultra-secure onchain data to trigger smart contracts in DeFi and beyond.
• Low-latency market data—Data Streams provide high-frequency market data to power next-generation DeFi markets.
• Reserves verification—Proof of Reserve verifies cross-chain and offchain reserves backing stablecoins, tokenized assets, and wrapped assets.
• Smart contract automation—Automation provides offchain computation for complex applications to automate smart contracts in a decentralized way with time or event-based triggers.
• Connecting any API to smart contracts—Functions enables connectivity between smart contracts and any API to run custom computations.
• Verifiable randomness—VRF provides verifiably random numbers to ensure fair outcomes in onchain games, NFTs, and more.

These services represent just the beginning. While Chainlink has grown from a single service into a robust platform and standard, the ultimate goal is to become the universal connectivity layer across onchain and offchain worlds. With innovations like the Chainlink Runtime Environment (CRE), the goal is to bridge the gap between decentralized finance and the traditional financial system and create a single, global, unified Internet of Contracts, with vast amounts of value flowing via the Chainlink standard.

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