1.1 Introduction

Digital assets are digital representations of value that may be transacted and secured by distributed ledgers (or a similar technology). Although the most common digital assets include cryptocurrencies1 (e.g., BTC, ethereum [ETH], XRP, Solana), there are many other types as well, such as stablecoins,2 digital securities, and certain nonfungible tokens (NFTs). Digital assets may have various functionalities, including, but not limited to:

Medium of exchange.
Store of value.
Specified utility.
Digitized investment.

The primary purpose of digital assets is to serve as an exchange of value, but they can also convey governance and other rights to their holders.

The distributed ledger securing the digital assets is often referred to as “blockchain technology,” which the AICPA defines in its Blockchain Universal Glossary as a “technology that records a list of records, referred to as blocks, that are linked using cryptography.” Cryptography is a means of encrypting information so that only a person with the necessary cipher (or private key) can use or access the underlying decrypted information.

Digital assets are units of value that are native to a blockchain and represent a means of exchange within the blockchain to incentivize the network of participants to use the blockchain. In a blockchain, each “block” of transactions contains a cryptographic hash record of the previous block, as well as a timestamp and the sequential transaction data being posted to the ledger. Once that block (the most recent group of transactions) is approved by the decentralized group (miners or validators), it becomes a permanent record on that chain and cannot be reversed. This chain continues as long as new blocks are created and becomes a verifiable record of every transaction that has occurred. These ledgers are intended to be immutable, or unable to be changed or edited over time, and therefore have a higher level of security than traditional financial transaction processing systems.

Footnotes

Although they are often used as a medium of exchange, these digital assets are not currencies despite being called “cryptocurrencies.”

Stablecoins are a digital asset whose value is designed to track the price of a traditional asset, such as a fiat currency (e.g., the U.S. dollar) or a commodity, to minimize price volatility.

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