The growth of digital assets has skyrocketed profoundly in recent times, especially after a global pandemic. On top of it, blockchain technology has been powering the development of new digital assets with different functionalities. While the applications of blockchain are transforming many other sectors, the emphasis on its potential impact on the finance sector continues to garner attention. The role of blockchain in powering digital assets for financial infrastructure is a prominent highlight in the evolution of the financial landscape of the future. Blockchain and digital assets have evolved rapidly from their initial stages of development.
Since the introduction of Bitcoin to the arrival of NFTs and the metaverse, digital assets have come a long way. Therefore, it is inevitable to wonder about the future possibilities associated with applications of digital assets in financial industry and their evolution. The following discussion delivers a favorable impression of the possible ways in which digital assets can transform the world of finance.
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How did Blockchain Foster the Development of Digital Assets?
A detailed understanding of answers to “What are digital assets in finance?” would be the first thing on your mind. However, let us take a look at how blockchain serves as the foundation for digital assets. The feasibility of digital assets in finance depends largely on the traits of blockchain incorporated in them. Blockchain offers the underlying technology for digital assets, while platforms offer the infrastructure for developing digital assets.
Some of the common platforms for developing digital assets include Ethereum, R3 Corda, and Hyperledger Fabric. The final aspect in understanding the role of blockchain in developing digital assets refers to commercial decentralized applications. The dApps are actually the foremost candidates for creating future investment opportunities.
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What are Digital Assets in Finance?
Many of the blockchain applications are digitally native, and the opportunities for using them throughout the digital assets economy are increasing. The attention on digital assets in financial industry is valid for all the right reasons, including their potential for improving accessibility of financial services.
If you look closely, the first-ever application of blockchain was a cryptocurrency, which is related to finance. So, anyone would wonder how digital assets powered by blockchain have evolved in the world of finance. A clear overview of the notable categories of digital assets in finance can provide a comprehensive idea of how they can impact financial infrastructure.
- Digital native assets such as Bitcoin, Ether, or BAT are the digital assets that are native to specific platforms. For example, Ether is the native digital asset of the Ethereum blockchain network.
- Stablecoins are also another notable example of digital assets for financial infrastructure revolution. You can think of stablecoins as cryptocurrencies with a stable value. One of the prominent examples of stablecoins would be central bank digital currencies.
- NFTs or non-fungible tokens are a new class of digital assets, which provide representation for ownership of real and virtual assets on a blockchain. Some of the notable examples of NFTs include digital avatars, collectibles, and digital art.
- Securities are also another emerging and profound example of digital assets in financial industry. Examples of securities among digital assets would include debt, equity, real estate, derivatives, and other financial services.
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State of Digital Assets Today
The next critical highlight after finding out “what are digital assets in finance?” would be the existing state of digital assets. As of now, the market cap for digital assets is almost $1.2 trillion, with the value of Bitcoin priced at $65,438. Since June 2020, the market capitalization for digital assets escalated by almost 725%. Some of the other highlights which validate promising opportunities for digital assets in finance include the following.
- Bitcoin has achieved exceptional levels of recognition among retail as well as institutional investors as a new digital asset.
- Ethereum has been successful in improving efficiency and ability for scaling alongside empowering prospects for facilitating DeFi.
- Exchanges powered by a broader crypto ecosystem registered massive trading volume numbers.
- At the same time, the growth of stablecoins as a preferred instrument for financial and payment applications also presents favorable prospects for adoption of digital assets for financial infrastructure.
- Furthermore, the exceptional growth rates of NFTs and DeFi solutions also offer a solid foundation for increased adoption of digital assets in the financial industry.
Applications of Digital Assets in Financial Industry
The effect of digital assets on the transformation of the financial industry depends largely on the capabilities of blockchain. You can find a clear overview of the impact of digital assets for financial infrastructure improvements by taking a look at their applications.
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Pure Cryptocurrencies
When you take a look at pure cryptocurrencies such as Bitcoin among digital assets in finance, you can discover straightforward applications. Pure cryptocurrencies serve as digital currency only while facilitating a store of value alongside a medium of exchange.
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Utility Tokens
The applications of utility tokens can also present a clear impression of “what are digital assets in finance?” and the significance of digital assets. Some of the notable examples of utility tokens include Ether, Filecoin, and Binance. Utility tokens leverage blockchain technology for offering additional services such as discounts on exchanges. They can also offer other services such as distributed file storage, smart contract platforms, and identity verification.
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Stablecoins
Stablecoins are a prominent class of digital assets with formidable potential for influencing the financial industry. The unique highlight of stablecoins is that they are pegged at a 1:1 ratio with fiat currencies. At the same time, stablecoins are able to provide the desired stability like fiat currencies with the backing of crypto collateral or fiat reserves.
The use of stablecoins as digital assets in financial industry can help in enabling low-cost transaction settlements, payments, and transfers. In addition, stablecoins could also ensure global payments through the use of blockchain rails. Some of the notable examples of stablecoins include BUSD, GEMINI Dollar, Paxos Standard, Tether, and USD Coin.
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NFTs
NFTs or non-fungible tokens have wide-ranging possibilities in the financial industry. They are unique digital tokens providing representation for ownership of a digital or real asset. NFTs utilize the open-source, decentralized blockchain technology for enforcing authenticity alongside the proof of ownership. The tradability of non-fungible tokens is also another promising highlight for considering their impact on financial infrastructure of the future.
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Financial Infrastructure
The applications of blockchain for creation of new infrastructures such as exchanges like Coinbase showcase the potential of digital assets for financial infrastructure improvements. Blockchain offers adequate prospects for digital transformation of capital markets. In addition, it can also enable the storage of historical data, thereby supporting improvements in documenting ownership of securities.
Transformation of Financial Infrastructure with Digital Assets
The arrival of blockchain in the financial infrastructure does not have its limit to cryptocurrencies and digital assets. On the contrary, blockchain solved two critical issues for the financial sector, such as, distributed trust problem and double-spend problem. Digital assets empowered by blockchain have unique applications for the financial sector.
However, one of the common themes you can find among digital assets in finance is the development of a financial services ecosystem with improved inclusivity and transparency. Digital assets can transform the financial services industry with the following value advantages.
- Real-time payments
- Decentralization
- Open network with higher transparency
- Smart contracts for facilitating automated transaction settlement with credibility
With such prolific benefits for transforming the financial infrastructure, digital assets in financial industry are poised to introduce many other developments.
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Potential Areas of Financial Infrastructure in the Scope of Digital Assets
The capabilities of digital assets for transforming financial infrastructure with the power of blockchain technology showcase their potential involvement in the future of the financial industry. However, it is important to identify the potential areas of financial infrastructure which would be influenced by digital assets. The notable areas of financial infrastructure which are looking for opportunities to capitalize on digital assets include the following,
- Brokerage
- Lending
- Custody
- Deposits
- Security issuance
- Asset management
- Payments
The applications of digital assets for financial infrastructure improvements across all these areas are closer to reality than ever. For example, enterprises and high net worth investors are seeking options for safeguarding digital assets while maintaining easy access and management privileges.
New partnerships and developments could empower traditional financial institutions to adopt cryptocurrency. On top of it, DeFi lending protocols have registered promising numbers for growth despite encountering complex user experiences. Furthermore, asset management services are working on simplification of buying crypto alongside record keeping and custody services.
Bottom Line
The rapid improvement in the popularity of digital assets in financial industry applications has brought some good news for everyone. However, investors need to look at both sides of the coin before diving into digital asset investments. You have to take various factors into account before assuming the impact of digital assets on the future of financial services.
For example, legal implications of digital assets and their compatibility with existing financial regulations will be a formidable concern. So, it is important to look for the setbacks alongside the opportunities associated with digital assets for transforming the financial industry. Learn more about digital assets and the opportunities they present for different sectors of financial infrastructure.
*Disclaimer: The article should not be taken as, and is not intended to provide any investment advice. Claims made in this article do not constitute investment advice and should not be taken as such. 101 Blockchains shall not be responsible for any loss sustained by any person who relies on this article. Do your own research!
