Crypto asset

Based on P2P Internet open source protocol, a Crypto asset is an internet asset issued on a crypto 2.0 platform (like Ripple, NXT, Counterparty etc.). In many cases the issue includes a limitation of the total volume of the given crypto asset. Some crypto 2.0 platforms utilize every user's PC's computing power to back up the transaction data synchronously, in real-time and across the world. Every user has a unique wallet address and they are able to check their balance and view related transaction details through terminal software.

Differences between crypto assets and crypto currency

According to economics and accounting, a currency is a medium that two parties agree has the same universal value and so can be converted into another asset. In some cases, a piece of currency is said to be the most "liquid" of assets. On the other hand, an asset is something that one can own either by issuing debt (borrowing) or by owning it (equity). An asset can be categorised in ways ranging from very liquid, for example cash or currencies, to highly illiquid, such as plants or buildings.

In most cases crypto assets are either promise-, or service-backed IOUs.

Crypto currencies mainly get their value from the trust of their users and this dynamic trust makes them highly or moderately volatile. Unlike crypto currency owners, the holders of crypto assets can have more influence on the value of their holdings as they can use that product/service and recommend it to other future users and both ways they contribute to the value of the crypto asset (Many times a whole community becomes an ever-growing group of advocates.)

Hence service-backed crypto assets can enjoy higher price stability (less volatility) as they are backed with tangible/intangible values (added values) beyond the trust of their users.

Safety

Crypto assets can be protected in different ways: by proof of stake or proof of work or by a mixture of both these systems together. Proof-of-work is based on open transaction records and a transaction confirmation system. Proof-of-stake prevents situation where anything over 51% of the current main chain is taken over. Building decentralized-peer-to-peer networks is one of these types of prevention method.

The proof-of-stake system was designed to address vulnerabilities that could occur in a pure proof-of-work system. For example, with the old type of crypto currencies, there was a risk of attacks resulting from a monopoly on a mining share. This was because rewards from mining are programmed to decline exponentially, which may therefore decrease the incentive to mine. As miners decline, the likelihood of a monopoly increases, which leaves the network vulnerable to a 51% attack. With a proof-of-stake system, based on the new procedures assets are generated based on the holdings of individuals. In other words, someone holding 1% of the currency will generate 1% of all proof-of-stake coin blocks. This has the effect of making a monopoly more costly, and separates the risk of a monopoly from proof-of-work mining shares.

Every time a transaction is done, it needs to be confirmed and saved, first in a block, then in a block chain. One confirmation means that the transaction has been saved in a block, then another five blocks come from signatures, which are present in the next five blocks. The more confirmation we have, the lower the risk of the transaction being reversed. Full confirmation includes six blocks, but most services require only one to three blocks. To make crypto assets safer more efficient systems have been built, which help to confirm transactions faster and more securely.

Another safety feature is the hash function, which is used in block chains to prevent attacks on the main chain by entering modifications. This also helps to optimize access to data structures and keep them secure[1]

Application of crypto assets

Crypto assets can be adopted in many commercial fields. For example, they can be used as loyalty points, which replace the traditional reward system generated by separate merchants. Its value appreciation is determined by the market demand and technical advantages. Because a system like this is very flexible, it can be used worldwide, which makes a big difference when compared to old-fashioned systems. Loyalty points and bonuses can be issued for different activities. This provides the possibility to build Internet platforms with a wide range of applications, for example, allocations focusing on goods consumption, or specializing in market research or even asset investment, where bonuses will be paid as a kind of dividend. Crypto assets in the form of tokens have already been used to support crowd funding campaigns. For example, Taringa and Xapo have implemented a system on Taringa to encourage its users to create content, in which users can receive tips in Bitcoin.[2]

Legality

Currently, there are many countries that have defined crypto assets as legal assets, some of them have required taxation from it and some have not. In California, crypto assets were defined as "legal and free to use" on June 29, 2014. Although crypto assets are virtual, they exists legally, because the voluntarily holding or trading of crypto assets is part of the free market economy.[3]

See also

External links

References

  1. ↑ "Bitcoin.pl - ABC bitcoina". bitcoin.pl.
  2. ↑ Perez, Yessi (15 June 2015). "Taringa’s Content Creation Surges Following Bitcoin Integration". CoinDesk. Coin Desk.
  3. ↑ FIN-2013-G001: Application of FinCEN's Regulations to Persons Administering, Exchanging, or Using Virtual Currencies". Financial Crimes Enforcement Network. 18 March 2013. p. 6. Archived from the original on 2013-03-19.
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