Digital Assets. A Step into New Era Economy

The global economy offers new types of investment instruments in the era of digital transformation.

This article discusses in detail the topic of digital assets, in what form they exist, and what real projects operate based on digital assets.

The era of digital transformation

The digitization of analog processes and existing physical objects has created a new asset class. These new digital objects have become easier to exchange, share and perform other operations. For example, sending emails by email has become cheaper and more practical than using the postal service. But the digitization of processes is not digitalization.

If digitization means the transition of analog objects to digital, then the concept of digitalization is presented more broadly and does not have a specific definition.

Deloitte often uses the term digitalization as a synonym for digital transformation.

According to MIT Sloan Management Review, “becoming digital” means that leaders must articulate a visionary digital value proposition. This value proposition must reassess how digital technologies and information can enhance an organization’s existing assets and capabilities to create new customer value.

Gartner says that digital business presents tremendous opportunities for innovation and competitive advantage. Creating this value requires a complete rethinking of the work itself.

From the many definitions, it becomes clear that the term “digital transformation” refers to the use of modern technologies and innovations to improve existing business processes and rethink entire industries for creating new value.

Innovative use of digital technology allowed startups to disrupt, transform, and even dominate well-established industries. They were able to achieve explosive, exponential growth because they leveraged digital technology in completely different ways and delivered new forms of value to their customers. PayPal, Amazon, Netflix, and many other companies have achieved massive growth thanks to the power of digital technology.

Digital assets

What about assets when companies and entire industries are undergoing digital transformation? After all, existing assets also have drawbacks and limitations. For example, the currency issued by the central bank depreciates over time, it is difficult to send it directly to another entity abroad without accompanying costs, or the issued banknote may go into the shadow sphere. The financial environment also needs development and transformation. Digital currencies are replacing old types of money. With their help, the central bank will be able to timely control inflation, redirect funds to lagging industry without the intermediation of commercial banks, and fight the shadow economy.

According to the German Banking Act (KWG), it is customary to distinguish the following types of digital assets: cryptocurrencies, security tokens, crypto-securities.

Cryptocurrencies are cryptographic values that are based on a decentralized payment system and do not represent a currency in the strict sense. Cryptocurrencies are partially recognized in some countries, are accepted as payment, thereby creating competition for existing fiat currencies. Whole ecosystems are emerging based on cryptocurrencies. More and more institutional and professional market participants are entering the cryptocurrency market to unlock new diversification potentials.

Security tokens are digital, liquid contracts for fractions of any asset that already has value, like real estate, a car, or corporate stock. Using security tokens means investors can expect that their ownership stake is preserved on the blockchain ledger. The tokenization of more illiquid and non-fungible assets is currently being accelerated by some market participants due to the easier transfer of ownership via blockchain.

The project of act on the introduction of electronic securities by the German legislator allow the issuance of crypto-securities as an alternative format to securitized assets. The differences to traditional securities lie in the type of issuance (electronic versus securitized).

Electronic Securities: digital securities that will be registered in a central securities register and that use the same custody and trading infrastructure as traditional paper-based securities

Crypto Securities: digital securities that will be registered in a crypto securities register and that will require entirely new custody and trading infrastructure based on distributed ledger technology (“DLT”) or similar technology, yet to be developed.

Digital assets in action

The widespread adoption of digital infrastructure and digital assets will lead to easier and faster issuance of new types of securities. For example, startups have been launched in Germany, allowing retail investors to become co-owners of certain real-world properties.

Digital platform Exporo connects investors and invests in real estate, delivering an annual return of 4 to 7%. Startup Finexty offers clients to invest in real estate, art, or other assets starting from 500 euros. In return, they receive a digital share confirming their stake in the asset.

Digital assets are more diverse than we think

Regulators and the traditional financial sector should not underestimate the growth from digital transformation, but rather develop a strategy for today’s challenges. The competition from the cryptocurrency world is growing. Cryptocurrency exchanges offer new asset classes to retail investors in addition to their core function. For example, you can buy Tesla tokenized shares or art objects in the form of non-fungible tokens (NFT) with Binance.

Key takeaways

The digitization of objects is not a digital transformation in its usual sense. Digital transformation creates new value using modern technology.

The traditional financial sector should embrace new rules of the game as digital assets overcome the existing barriers of traditional assets.

Digital assets are not only cryptocurrency and blockchain technologies, but also real projects with retail investors.




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Hiero Capital Management Corp.

Hiero Capital Management Corp.

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