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Cryptocurrencies are just one type of Blockchain-Powered Digital Assets.

"A digital asset is anything that exists only in digital form and comes with a distinct usage right or distinct permission for use." - Wikipedia

Digital assets include videos, pictures, audio, Apps, Software, Documents, and anything that is stored or will be in circulation in digital hardware like phones, computers, servers, etc. Generally, they are any form of digital possession that gives value to the owners, creators, and users.Cryptocurrencies, Non-Fungible Tokens (NFTs), Soul-Bound Tokens (SBTs), Stablecoins, Pegged Assets, and Central Bank Digital Currencies (CBDCs) are referred to as digital assets because there are stored and transferred using Blockchain networks, and these digital networks are accessed and managed using digital hardware. Blockchain and its Digital Assets are revolutionalizing the face of money, transactions, business, and systems completely. Having a background in these Assets will aid your adventure across the XRPL and Crypto space in general.

Cryptocurrencies are digital currencies in which transactions are verified and records maintained by a decentralized system using cryptography, rather than by a centralized authority. This is to say Cryptos, as they are famously called, are native to Blockchain Networks. They can be transferred, utilized, and exchanged for one another within the Network. Cryptocurrencies are meant to be used as a medium of payment in a Decentralized Protocol and/or can be utilized for a particular means as well. Cryptocurrencies can be categorized into the following Assets:

We will discuss the five categories below to build an individual insight into how they are utilized on the Blockchain.

Native Tokens

Native Tokens are the foundational digital currencies of every Blockchain Network. Every blockchain network has its native coin used to reward miners and validators, adding blocks to the blockchain ledger and for payment. These are also known as base or intrinsic tokens because a blockchains design functions with a particular token. In essence, these tokens are the working currency on the Blockchain; they also represent the value of the Blockchain ecosystem, just as Ripple Coin (XRP) represents the value of the Ripple Ledger ecosystem. They are used to carry out different activities on the Blockchain, like paying for transactions and gas fees, and to reward validators/Nodes on the Blockchain. Other types of Cryptocurrencies or tokens like NFTs, Stablecoins, governance, and Utility Tokens require the Native Token to thrive because they are derivatives of the Blockchain, just as SOLO and CSC values increase in XRP.

Utility Tokens

Utility Tokens are a type of tokens that are used to access a particular product or service within a blockchain-based ecosystem. Utility Tokens do not provide any ownership or investment stake in a project. These digital assets are used within the ecosystem for various purposes, such as paying transaction fees, accessing premium services, and participating in governance and decision-making processes. Good examples in the XRPL are RPR for Reaper Financial Ecosystem, SOLO for Sologenic DEX and Marketplace, RDX for Radical-X Marketplace, and CSC for the Casino Coin platform.

Security Tokens

Security Tokens represent rights of ownership, transfer of value, or promise of returns that are tokenized on a blockchain. It is intended to be treated as an investment instrument. In other words, security tokens are the digital form of traditional investments like stocks, bonds, or other securitized assets. These assets must be approved by the Security and Exchanges Commission (SEC) before their issuance. Security tokens and cryptocurrencies are nearly identical. They are created by and stored on a blockchain. They are both tokens, but the crucial difference lies in their purpose, intended use, and actual use. Cryptocurrencies are designed as a currency, money, or payment medium on a Blockchain network. A security token is utilized as a stock, bond, certificate, or other investment asset.

Stablecoins

Stablecoins are a type of cryptocurrency whose value is tied to a reference asset, which is either fiat money, exchange-traded commodities (such as precious metals or industrial metals), or another cryptocurrency.The theory is to back each unit 1:1 with the reference assets, and the Stablecoins have a pegg on the assets that allow it to follow the price of that asset and are fairly exempted from various volatility of crypto assets. Stablecoins are either fiat-backed, commodity-backed, Cryptocurrency-backed, or algorithmic Stablecoins. Examples of Stablecoins are USDT and USDC as Fiat-backed, nUSD, and HAV (Haven) and CDP and MKR (DAI) for Cryptocurrency-backed, the fallen UST and USDD for algorithmic Stablecoins, digital gold, and Silver for commodity-backed Stablecoins.

Bonded/Pegged Assets

Bonded/Pegged Assets are tokens tied 1:1 to a Cryptocurrency and have a pegg on that asset to track its price. While Stablecoins are Pegged Assets, they are not the only types available. The Bonded Assets Concept is used within a Blockchain and for Inter-Blockchain Bridging or transfer of tokens. This process requires an oracle for price tracking and a bridging protocol for token transfer to the new Blockchain. An example of a Blockchain-based pegged Asset is wrapped XRP (WXRP), which is a token on the XRPL Ledger pegged to the XRP, and of Inter-Blockchain Tokens are BTC and ETH Tokens on the XRPL that are bridged and Issued to the XRPL using Bithomp platform.

Central Bank Digital Currencies (CBDCs) are digital assets that are issued by the Central Bank of a country. They are a digital representation of a countrys fiat currency. Other forms of digital assets are prone to price volatility, while CBDCs are of a fixed valuation. Fiat currency is a legal tender issued by the government. It is for debt settlement and the exchange of goods and services. CBDCs are also legal tenders.

The main goal of CBDCs is to provide businesses and consumers with privacy, transferability, convenience, accessibility, and financial security. This digital asset will help to increase transaction efficiency and reduce transactions and processing costs once implemented. It will also increase the speed of cross-border transfer and mitigate the transfer cost.

There are two types of CBDCs, which are Retail and Wholesale CBDCs. CBDCs wholesaling is keeping a CBDCs reserve in the bank, and CBDCs Retailing involves spreading the currency for users and citizens to engage in transactions with it. Generally, you can access CBDC as a Retailer through token-based access that requires a wallet (public & private keys) or account-based access that requires digital identification. It is beneficial to have wholesale and Retail CBDCs in the same economy.

It is important to note that CBDCs are similar to Cryptocurrencies, but it doesnt require Blockchain technology or a consensus mechanism to operate. CBDCs operate on centralized technologies to allow the government to manage and regulate the currency, as Cryptocurrencies are known for price volatility and other decentralized risks. CBDCs are in the Development phase currently. Good examples are the ENaira for Nigeria, the Digital Dollar for the USA, and the Digital Euro for the Euro Zone.

Non-Fungible Tokens are unique assets tokenized on the Blockchain. They have a Unique identity code and metadata that distinguishes them from every other NFT and asset. NFTs are indivisible and held in units of 1.Money and cryptocurrencies are used to acquire NFTs and even other NFTs. These Assets are not exchangeable in the conventional DEX trading model and require the buyer or seller to set an asking or bidding price like an auction. The platform for NFTs sales is called Secondary Marketplaces, and we have a few in the XRPL, Sologenic, XMart, Radical-X, Onchain marketplace, and XRP Cafe are the notable. NFTs help tokenize music, Pictures, Art, Documents, identity, intellectual property rights, Real estate, Avatars, and many more. NFT Tokenization allows easy sales and ensures the security of the assets from fraudulent actors.Generally, NFTs require a protocol for them to operate. Ethereum Network uses ERC-721 and ERC-1115 standards for its NFTs operation, while the Ripple Ledger uses XLS-14 and XLS-20 protocols.Minting is a process used to create NFTs, which involves uploading the image or whatever information on the Blockchain. It represents assigning the information a unique ID and assigning it to a wallet using smart contracts.Soul-Bound Tokens (SBTs)

SBTs are Non-Transferable and publicly verifiable NFTs.These NFTs represent an individuals credentials, affiliation, accomplishments, and commitments on the Blockchain. Soul-Bound Tokens are untradable and untransferable from the wallet that holds the Token. The wallets that issue and receive an SBT are known as Souls. The process of minting Soul-Bound Tokens is reversible in terms of loss of wallet as there are ways to verify ownership of the SBT from the issuing Soul. The Issuing Soul can revoke the SBT from the receiving Soul wallet.SBTs are a very Lucrative asset and have some applications in real life and on the Blockchain. A few are listed below:

So far, XRPL hasnt issued Soul-Bound Tokens, but we hope to see it in play soon.

Smart contracts are transactional protocols that automate the execution, control, and documentation of events and actions based on the terms of a contract.Smart contracts mitigate the need for intermediaries, arbitration costs, fraud losses, and the reduction of malicious exceptions during multiple transactions. Smart contracts are commonly associated with Blockchain technology, created by Vitalik Buterin, the Founder of the Ethereum Network.Writing smart contracts requires a programming language for identifying conditions for the Smart Contract to implement; good examples of smart contract languages are Solidity for EVMs, Moove for Aptos & Sui Blockchains, and Scrypto for Radix DLT. The protocol is different from other software programs due to their immutable, self-governing, and Blockchain executable nature. They are Decentralized types of Software or applications; Smart contracts are deployed on the Blockchain for use by sending a transaction for the Blockchain; the compiled code for the Smart Contract is written on the executed transaction alongside a special receiver address. Byzantine fault-tolerant algorithms secure the smart contract in a decentralized way from attempts to tamper with it.Smart contracts aid decentralized transaction automation. Notable areas of Smart application are in AMMs, Asset minting, Bridging, Pegging, and every other decentralized process.

Hooks

The XRPL is a value layer Blockchain and is not smart contract Compactable. The dynamic nature of the Federated consensus protocol allows for code Amendments to the Blockchain. Especially for the Ripple Ledger is a transaction automation protocol known as Hooks.

Hooks add smart contract functionality to the XRP Ledger: layer one custom code to influence the behavior and flow of transactions. Hooks are small, efficient pieces of code being defined on an XRPL account, allowing logic to be executed before and/or after XRPL transactions.XRPL Foundation.

These Hooks can be really simple, like: reject payments < 10 XRP, or for all outgoing payments, send 10% to my savings account or more advanced.

Hooks are used to effectively manage incoming and outgoing going transactions through logic processing and counter transactions when the logic is unsatisfied. The XRPL has been able to effect multi-sign, escrow, payment channels, NFT Protocols, and DEXs without smart contracts. Hooks will achieve a lot on the Ledger despite its Turing incompleteness; the protocol is currently on public testnet and will soon start mainnet operations in the XRPL L2 Blockchain known as Hooks Sidechain, awaiting the XRPL Hooks mainnet Amendment.

Blockchain-Powered Digital Assets are Cutting edge solutions of Distributed ledger technology; Cryptocurrencies have seen applications in multiple sectors of life and different forms.Smart contracts and Hooks are revolutionary approaches to transaction automation seen in their addition of Decentralization and immutability to the process. XRPL is a unique technology infrastructure that uses Hooks over Smart contracts and has the ability to create escrows, multi-signs, DEXs, and do many more without it.

Cryptocurrencies are volatile assets, and it is important to do your research and due diligence before making any investment decisions, as the Author of this series will not take responsibility for any loss of funds due to wrong investments. This article is for education and information purposes. Thus, it should not be seen as financial advice.

Marvin Sunday

You can access the Article Series here and you can also reach out to the author here

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