Digital Assets & Cryptocurrency: FAQ

Q: What is a Digital Asset in the context of crypto?A: A Digital Asset is a broad term for anything that exists in a digital format and holds value, ownership of which is recorded on a secure, decentralized ledger like a blockchain. Cryptocurrencies are the most well-known type of digital asset.

Q: What is the difference between a Digital Asset and a Cryptocurrency?A: All cryptocurrencies are digital assets, but not all digital assets are cryptocurrencies.

• Cryptocurrency (e.g., Bitcoin) is specifically designed to function as a medium of exchange, a unit of account, and a store of value. It is typically the native asset of its own blockchain.
• Digital Assets are a broader category and can include other things like Tokens (built on existing blockchains), NFTs, and Stablecoins.

Q: What are the main types of digital assets besides Bitcoin?A: The digital asset universe is vast and includes:

• Crypto Tokens: Assets built on an existing blockchain (like Ethereum's ERC-20 tokens) that can represent utility, governance rights, or a share in a platform.
• Non-Fungible Tokens (NFTs): Unique digital tokens that represent ownership of a specific asset, such as a piece of digital art, a collectible, or virtual land.
• Stablecoins: Digital assets designed to maintain a stable value by being pegged to a real-world asset, typically the US Dollar (e.g., USDC, USDT).
• Security Tokens: Digital assets that represent ownership in a traditional investment, such as stocks, real estate, or other physical assets.

Q: What is a Blockchain?A: A blockchain is a Distributed Ledger Technology (DLT). It is a shared, immutable database structure that records transactions in "blocks." These blocks are cryptographically linked together in a "chain." Its decentralized nature means no single entity controls the data, making transactions transparent and tamper-proof.

Q: How is my digital asset (like a cryptocurrency) actually stored?A: Your digital asset is not physically stored in your wallet. Instead, the record of your ownership is permanently recorded on the blockchain. Your crypto wallet stores the crucial access credentials (the keys) that allow you to prove ownership and authorize transactions.

Q: What are Public and Private Keys?A: Every digital asset holder has two keys:

• Public Key: Acts like a bank account number or email address. You can share this with others to receive assets.
• Private Key: Acts like a password. It is a secret code that allows you to access and transfer your assets. Losing your private key means losing access to your assets forever.

Q: What is a crypto wallet?A: A crypto wallet is software or a device that holds your Private Keys. There are two main types:

• Hot Wallet (Online): Connected to the internet (e.g., exchange accounts or mobile apps). Convenient but generally considered more vulnerable to online hacks.
• Cold Wallet (Offline): Stores keys entirely offline (e.g., hardware wallets or paper wallets). Highly secure, making it ideal for long-term storage of large amounts of value.

Q: Are digital assets secured against fraud and hacking?A: The blockchain itself is secured by advanced cryptography and decentralization, making it extremely difficult to tamper with. However, individual assets are vulnerable if:

1. Your Private Key is stolen (via phishing, malware, or lack of physical security).
2. You leave your assets on an unsecured or compromised exchange/hot wallet.

Q: Are digital assets regulated by the government?A: The regulatory landscape is still evolving and varies significantly by country and by the type of asset. Many governments classify digital assets as property rather than currency for tax purposes (e.g., the U.S. IRS). Certain types of tokens, known as Security Tokens, are often regulated by financial bodies like the SEC.

Q: Are profits from selling digital assets taxable?A: Generally, yes. In many jurisdictions, digital assets are treated as property, meaning that profits realized from selling, exchanging, or disposing of them are subject to Capital Gains Tax. If you receive digital assets as payment for services, it may be treated as ordinary income. Always consult a qualified tax professional regarding your specific situation.