Digital asset

An entry on a shared ledger, transferable by whoever holds the private key controlling it. Unlike every other instrument in this curriculum it is not a claim on an issuer, a company or a borrower.

Example

Owning one means holding a secret number that can authorise a change to one line of a public record - there is nobody obliged to pay you anything.

Important

There is no cash flow, so the standard valuation methods have nothing to operate on and the entire return depends on what a later buyer pays.

Related terms

  • Private key — The secret number that authorises a change to a ledger entry. Whoever holds it controls the asset, nobody else can move it, and nobody can restore it.
  • Distributed ledger — A shared record maintained and checked by many independent computers, in which a settled transfer cannot be reversed by any of them.
  • Self-custody — Holding the private key to your own digital assets, rather than leaving them with a trading venue or a custodian that holds the key for you.
  • Speculation — Putting money at risk on an outcome you cannot analyse with any real confidence, hoping for a large payoff.

Lessons that explain it

  • A secret number, and one line in a shared record — What you own is not a coin and not a claim on anybody. It is the ability to authorise a change to one entry on a ledger - and who holds that ability is the whole of the risk. (10 min)
  • No coupon, no rent, no earnings: the next buyer is the return — There is no income here by default and no cash flow to discount. Where a protocol does pay a yield, the useful question is not how much - it is where the money comes from, and sometimes the honest answer is other holders. (11 min)

All 578 terms in the Investing glossary