What are digital assets?
Suddenly, the "metaverse" is everywhere in business.1 And maybe your company isn't ready to dive headfirst into this still-fuzzy concept of a world in code. But it's a good time to contemplate the role digital assets should play in your company's growth plan. In fact, you're probably already dealing in digital assets in some form.
What is a digital asset, really?
Companies have been creating valuable property in digital form long before buzzwords like “cryptocurrency” and “NFTs” came along. These assets were mostly intellectual property, such as documents, graphics files, and audio files—but also stores of value such as loyalty points. Then the concept of the blockchain came along and launched the current era of innovation—and hype—around buying and selling digital assets.
In 2009, bitcoin emerged as the first cryptocurrency.2 Using a new technology called the blockchain, bitcoin enabled individuals and organizations anywhere in the world to exchange value peer to peer without going through a bank or government. As bitcoin gained popularity and value, many new cryptocurrencies have launched. They're called that because cryptography verifies and secures transactions.3
Even after the price of bitcoin crashed from its 2021 highs,4 the combined market cap of all cryptocurrencies is still more than $1 trillion.5
Short for "non-fungible tokens," the concept of NFTs takes the blockchain beyond currency into the world of intellectual property. Harvard Business Review defines an NFT as "a blockchain-based tool that enables anyone to monetize digital content."6 Creators have sold works of visual art,7 music,8 fashion designs,9 and even sports highlights videos10 as NFTs.
What's the point of turning a creative work into an NFT? Because a blockchain is a public ledger where anyone can view every transaction, an NFT can work as a guarantee of authenticity and uniqueness. Artists are using NFTs to create a sense of scarcity, by releasing only one or a limited number of copies of a specific work in NFT form.
Items and real estate in virtual worlds
Even before crypto, gamers and people who enjoyed hanging out in virtual worlds such as Second Life were buying and selling items that existed only digitally. If your kid has purchased a $1 hat for their Roblox avatar,11 they own a digital asset. On the other end of the spectrum, buyers have paid millions of dollars for real estate in virtual worlds Decentraland12 and The Sandbox.13
Customer loyalty programs have been around for more than a century14—ask your grandmother if she remembers S&H Green Stamps. For decades, these rewards have existed only as a number on your credit card or frequent flyer account, meaning they were already a form of digital currency long before bitcoin.
Increasingly, loyalty programs are making their programs more flexible.15 Where once you could only redeem points for a flight on the same airline where you earned them, now you might be able to choose to redeem your rewards for a hotel night or a restaurant meal, pay down your credit card bill, or simply spend anywhere like cash.
Even if the increasing buzz around the metaverse subsides, understand that digital assets are already part of today's mainstream economy, and they will grow. Expect to see these basic forms of digital assets grow, develop, and combine in new ways. Whole new categories of digital assets may well show up on the scene. In fact, more than 100 countries, including the United States, are exploring creating Central Bank Digital Currencies (CBDCs)16—digital forms of their sovereign currencies. Digital assets are not likely going away.