Digital Assets

What Is a Blockchain?

A blockchain is a distributed database or ledger that is shared among the nodes of a computer network. As a database, a blockchain stores information electronically in digital format. Blockchains are best known for their crucial role in cryptocurrency systems, such as Bitcoin, for maintaining a secure and decentralized record of transactions. The innovation with a blockchain is that it guarantees the fidelity and security of a record of data and generates trust without the need for a trusted third party.

One key difference between a typical database and a blockchain is how the data is structured. A blockchain collects information together in groups, known as blocks, that hold sets of information. Blocks have certain storage capacities and, when filled, are closed, and linked to the previously filled block, forming a chain of data known as the blockchain. All new information that follows that freshly added block is compiled into a newly formed block that will then also be added to the chain once filled.

What are digital assets?

Digital assets leverage blockchain and/or smart contract technology to represent a digital form of value, perform a function or incentivize certain activities. These assets are built based on code that governs all aspects of their economic value, utility, and ownership.

Digital assets can be split into two subclasses: cryptocurrencies and tokens. Cryptocurrencies are native blockchain assets used as digital commodities to power network activity. For instance, ether (ETH) is Ethereum’s native cryptocurrency used to pay for the settlement of data on its blockchain. Tokens are smart contract-based digital assets with a wide variety of functions. Tokens can be fungible or non-fungible and can have many different use cases. These include powering specific dapp activities or representing unique pieces of data such as digital and real-world assets on the blockchain.

Who controls digital assets?

No single party or network participant controls the digital assets space. The leading cryptocurrencies and tokens are maintained by a network of users who work together to validate and record transactions on the blockchain.

Importantly, participating in these distributed networks is open to all and only requires the correct hardware and software know-how. Software development and maintenance typically fall to a group of developers. Governance voting falls to a group of global participants and often determines software implementation. However, not all digital assets operate the same way, and there are cases where cryptocurrencies and tokens can be highly centralized and manipulated by certain actors.

If digital assets are based on code that lives on a blockchain, can they be hacked? How safe are they?

Digital assets can be hacked, and they are subject to cybersecurity risks. However, a blockchain’s design makes it incredibly difficult for attackers to tamper with historic data. Blockchains use advanced cryptography to ensure data integrity and security. They also feature native defense mechanisms requiring heavy resources and financial capital to conduct dishonest activity. When researching cryptocurrencies, ensuring proper decentralization and strong consensus mechanisms is paramount to network security.

Additionally, a fault in smart contract code can be a vulnerability for dapps built on blockchains. Hackers often try to exploit gaps in the code or the infrastructure applications that these dapps may rely on. When researching tokens, it is important to consider the smart contract behind the token, the developer team, the token’s economic model, supply dynamics, infrastructure dependencies, and relevant on-chain activity.

How can investors start investing in digital assets?

Investors have regulated and unregulated methods for investing in digital assets. Regulated vehicles may offer greater protections for investors, but they may also impose stricter investor requirements and offer less direct exposure to their underlying assets. When considering regulated investment vehicles, it is important to consider management fees, custodial infrastructure, and customer agreements. Considering that the Digital Assets market is not easy to navigate, Bison Digital Assets helps along this journey by bridging the fiat and digital world, while keeping total segregation between accounts and assets’ ownership. This way, people have full control of their Digital Assets, retaining independence and free will over their own decisions.

What are the differences between the Bitcoin and the Ethereum networks, and why do their respective assets have value?

The Bitcoin network is a globally accessible database that enables the storage and peer-to-peer value transfer of its native asset, bitcoin (BTC). BTC is divisible, fungible, and easily transferable with a programmatically defined monetary policy that ensures its scarcity. Because of its store of value characteristics, bitcoin is often referred to as a form of digital gold.

Ethereum expanded on Bitcoin’s innovative use of blockchain technology by creating a platform capable of hosting advanced applications on top of a blockchain, powered by Ethereum’s native asset, Ether (ETH). This innovation introduced the concept of smart contracts and laid the foundation for the invention of decentralized applications (dapps). Dapps have the potential to reconstitute the application layer of today’s internet. Because these applications are powered by ETH and settle their data to the Ethereum network, Ethereum is positioned as a settlement layer for a new internet of value.