What are Virtual Assets?

Crypto assets are virtual assets that are encrypted and displayed using distributed ledger technologies like blockchain. Typically, cryptocurrencies include Bitcoin and Ethereum.

In recent years, with the sharp rise in the price of cryptocurrencies such as Bitcoin, crypto assets have gradually become a well-known investment category. Before officially getting involved in crypto assets, investors should understand the relevant basic concepts.

1. Cryptocurrency

Cryptocurrency is a type of digital asset that is encrypted and exists only virtually. Not controlled by a central issuing agency or regulator. However, it relies entirely on a decentralized system for issuance and trading.

2. Blockchain

Crypto assets are built on blockchain technology, a distributed digital storage technology that is widely distributed across a global network of computers. And thought of as a “decentralized ledger.”

Blockchain integrates distributed storage, peer-to-peer transmission, consensus mechanisms, cryptography, and other technologies and has the characteristics of decentralization, traceability, non-comparability, irreversibility, transparency, security, and programmability. Blockchain technology can be applied to digital currency transactions, supply chain management, identity verification, and other fields.

3. Bitcoin and Ethereum

Ethereum and Bitcoin are the two most representative cryptocurrencies, both of which are decentralized digital currencies based on blockchain technology.

Bitcoin is the earliest cryptocurrency, proposed by Satoshi Nakamoto in 2009. Its main feature is decentralization and no central bank or government agency control. The supply of Bitcoin is limited to 21 million pieces, and it is not affected by inflation and monetary policy.

Ether is a digital token based on the Ethereum system. Ethereum uses blockchain technology that is different from Bitcoin and was proposed by Vitalik Buterin and others in 2014. Its biggest innovation is that it provides smart contract functions. Smart contracts are computer programs that can automatically execute contract conditions and support the development of decentralized applications. Therefore, Ethereum can support a wider range of application scenarios, including financial applications, digital identity verification, etc.

4. Hot Wallet vs Cold Wallet

Hot wallets and cold wallets are the two main ways to store digital currencies. The primary distinction between them is the state of their internet connection and the way the private keys are kept.

Wallets with an Internet connection are hot wallets or online wallets. Private keys are stored on devices connected to the Internet, such as computers, mobile phones, etc. Hot wallets are convenient for users to use digital currencies, but their security is affected by the service provider, so you need to be cautious when choosing.

In contrast to hot wallets, cold wallets are wallets that are not connected to the Internet, also known as offline wallets. Private keys are stored in offline devices, such as hardware wallets. Since they are not connected to the Internet, cold wallets can effectively prevent hacker attacks and have relatively high security, but at the expense of some convenience.

5. Public and private keys

Users send and receive cryptocurrency assets through public key cryptography.

Through the public key, the wallet address can be calculated and derived, which can be simulated as a “bank card number”. If you want to receive cryptocurrency in a transaction, you need to provide the sender with the correct wallet address so that they can send the assets to your account. If you want to send cryptocurrency, since the cryptocurrency is irreversible after sending, please be sure to carefully check the recipient’s wallet address to avoid irreparable losses.

The private key is similar to the password of the wallet, which is used to prove the ownership of the asset and can be simulated as a “bank card password”. It is a long string of characters that must be kept properly and must not be disclosed to others. Once the private key is lost, the corresponding wallet will no longer be accessible, which means that the encrypted assets will be permanently lost.

6. Centralized Exchanges vs. Decentralized Exchanges

Centralized exchanges (CEX) and decentralized exchanges (DEX) are the two primary categories of cryptocurrency exchanges.

Transactions on centralized exchanges (CEX) are controlled by the exchange. Users need to entrust their currency and transaction information to the exchange, which manages the currency and provides transaction processing and matching services. Since centralized exchanges use efficient transaction matching algorithms, transaction speeds are usually faster. However, users need to guard against exchanges abusing their power to conduct unfair transactions.

Decentralized exchanges (DEX) do not have intermediaries to track order books and match orders. Instead, they are executed by smart contracts in a distributed network, allowing users to trade crypto assets in real time. In a decentralized exchange, users have absolute control over their assets. Transaction matching and settlement are all completed on the blockchain. Compared with centralized exchanges, decentralized exchanges are more transparent. Because transactions need to wait for blockchain confirmation, the speed is usually slower.

Risks Associated with Virtual Assets

The prices of virtual assets may be very volatile and are affected by many unpredictable and difficult to assess events or factors. Including changes in overall market sentiment. Changes in the acceptance of virtual assets, regulatory changes, security incidents of related networks or related trading platforms. Related fraud, market manipulation, and chain reactions are reasons for the collapse of some important virtual asset market participants. Further developments of other related networks.

It is particularly worth noting. Virtual assets are relatively innovative products, and the industry is changing rapidly. Both virtual assets and the virtual asset industry are facing huge hype, rapid price changes, and uncertainty. In addition, the operation of virtual assets does not involve the participation of central institutions (such as banks) and generally does not receive government support. If the development or recognition of individual virtual assets slows down, stagnates, or reverses. It may have an adverse impact on the price of the relevant virtual assets.

Government Regulation Law

Regulation of virtual assets is still developing and increasing. Regulatory changes or actions may substantially change the investment nature of virtual assets, restrict the use and exchange of virtual assets, or restrict the operation of blockchain networks or venues for virtual asset transactions, thereby adversely affecting the value of virtual assets. In extreme cases, government intervention may make virtual assets illegal.

Cryptocurrency trading venues are relatively new, and many are largely unregulated. Trading venues not regulated by the SFC are generally less stringent than those faced by trading platforms in traditional financial markets. They are required to provide investor protection, but not to the same extent as regulated securities or futures exchanges. Therefore, compared to some well-established and regulated securities, derivatives, and fiat currency exchanges. Cryptocurrency platforms that are not regulated by the SFC are more vulnerable to theft, fraud, bankruptcy, cybersecurity incidents, market manipulation, and insider trading. The prices of cryptocurrencies also experience larger and/or more frequent sudden declines.

Online Threats

Virtual assets are vulnerable to cyberattacks. Cybersecurity risks to virtual asset-related networks and institutions. That host or facilitating virtual asset transactions may lead to a loss of public confidence in virtual assets and a decline in the value of virtual assets. In particular, malicious actors may exploit defects in virtual asset-related networks to, among other things, steal virtual assets held by others, control the network, or issue large amounts of virtual assets in violation of network protocols. The occurrence of any such incidents may have a significant adverse impact on the value and liquidity of virtual assets.