Digital assets are not necessarily cryptocurrencies: a little tour through the jungle
Karen Wendt, SFTL President & expert in responsible, impact and sustainable investing
We’ve all been there. We’ve read about blockchain technology and heard about e-securities and digital assets, and the term tokens and tokenisation has made the rounds, but how is this relevant to everyday life?
When assets are tokenised, it means that their value, ownership and property rights are digitally mapped in a digital register that can be either, decentralised, distributed or centralised. On the basis of blockchain technology, tokens are increasingly being generated that are intended to embody certain rights and obligations as cryptographically secured electronic coupons or digital tokens. Tokenisation thus describes the process of digitally mapping real assets or claims, for example on a blockchain. We have already reported on the fact that such a register on the blockchain can be centralised, decentralised or distributed. For example, the Bank for International Settlements would like a central register and the tokenisation of all assets, which are then on this central register and assigned to the owner with their current value. Bitcoin, on the other hand, is based on distributed decentralised networks, which means there is no central ledger, no central authority that has sole control over the register.
Thus, any asset can be tokenised, i.e. represented in digital form, including every watch, every car, every share, every bond, every stake in venture capital, simply everything. What is new is that this digital image is programmable, i.e. it is a matter of programmable assets. For example, it is possible to regulate who can access these assets at what time; this can be programmed into the digital image, the digital twin, by means of so-called smart contracts.
Now, a capital in the new BIS annual report is raising eyebrows. It outlines nothing less than the new financial market architecture. The talk is of a “unified ledger”, whereby digital central bank currencies, tokenised funds and securities are brought onto a programmable platform. Smart contracts, where the terms of payments are written directly into the code, can also be integrated. A ledger is an electronic ledger or register, writes Peter rohner from the University of Basel.
If they want to pay with digital money, i.e. with tokens, they also need a digital purse called a wallet. Their tokens are now in this digital wallet. A wallet is a kind of digital wallet in which you can store your assets – safely.
A comparison with the old physical world is worthwhile here. You can lose your wallet, or someone can use a credit card reader to raid your credit card. This is more difficult with wallets, but it is not impossible. That’s why the money you have in the wallet is also called hot storage, the wallet is accessible via the internet, otherwise you couldn’t pay at all. Codl storage, on the other hand, refers to assets that are not in the wallet. This distinction is very important in a decentralised or distributed system, because what is in hot storage can of course be lost – because of the accessibility via the internet – but not so in centrally organised systems.
Digital assets are therefore all assets that are digitally represented, not only so-called crypto assets. Digital assets are not necessarily cryptocurrencies, but can be any digitised assets, for example documents, images that can be stored, traded and used digitally, securities, commodities, real estate or other assets – up to digital central bank currencies (CBDCs) and crypto assets. Digital assets can represent different rights (e.g. property or usage rights) and therefore also have different characteristics. The Swiss Financial Market Supervisory Authority FINMA distinguishes between utility tokens, payment tokens and asset or security tokens.
Non-native digital assets are assets that already exist outside the blockchain, such as money, securities, real estate or tangible assets. Native digital assets, on the other hand, exist only on the blockchain itself, and were created there.