Cryptocurrency & digital assets

Cryptocurrency is a digital asset with a certain value attached to it which can be exchanged and used much like ordinary currency but notably is not reliant on central authorities, such as a government or bank.

While all digital and most virtual currencies are centralised with supply controlled by the developer of the currency, cryptocurrencies such as Bitcoin are decentralised and not created or controlled by a single central entity. Therefore, supply and value of cryptocurrency is determined by demand.

Instead of being physical money carried around and exchanged in the real world, cryptocurrency payments exist purely as digital entries to an online database describing specific transactions. When you transfer cryptocurrency funds, the transactions are recorded in a public ledger. Cryptocurrency is stored in digital wallets.

If you own cryptocurrency, you don’t own anything tangible. What you own is a key that allows you to move a record or a unit of measure from one holder to another.

There is now some considerable value in certain cryptocurrencies, such as Bitcoin and Ethereum, where that particular currency can be used much like money. The added feature of such currency is the privacy associated to it. You will never know who owns a particular cryptocurrency, only the owner of a private key to access the public key will be able to unlock the value. Some individuals consider such privacy to be an attractive feature, and many take to the idea of decentralised finance i.e., the opposite to our current banking system.

While cryptocurrencies such as Bitcoin have risen considerably in value in the past 10 years – the value of 10 Bitcoin has risen from an average value of £130 in 2012 to £280,000 by the start of 2022 – they are also notoriously volatile and high risk. That can therefore lead to issues, for instance due to poor investment decisions, inability to unlock or lay claim to such assets on someone’s death and overall a lack of transparency.

The other notable digital asset with particular value is that of a Non-Fungible Token.

Non-Fungible means that the asset is unique and cannot be replaced with something else. Cryptocurrency, on the hand, is fungible – you can trade it for something else.

These assets are anything digital in nature such as digital art or music. Much of the recent excitement in NFTs stems from an evolution of collecting digital art. The value in this context is that NFTs are designed to provide the owner with something that cannot be copied

Most often, the issues lie in their susceptibility to fraud, financial volatility, and the difficulties they pose either with ownership in lifetime or in effectively passing on the ownership on death.