The evolution of digital assets in a digital age

By Kate Leaman, Chief Market Analyst at AvaTrade

As technology continues to rapidly transform, highlighted by the recent boom of artificial intelligence (AI) and machine learning (ML), the digital economy is evolving with it. In particular, digital assets – a way for users to both store and transfer value – are taking the financial market by storm.  There is no question that digital assets are here to stay, with the number of users anticipated to reach 992.50 million users by 2028.

From increasing innovation within cryptocurrencies such as stablecoins to developments in blockchain technology, digital assets are disrupting traditional financial systems by increasing efficiency and transparency. While advancements are a success, it is important regulations match the same pace.

What innovations in digital assets have we seen?

Cryptocurrency first appeared in 2008, with the introduction of Bitcoin – an event which kickstarted the evolution of digital assets. Since then, the world of cryptocurrencies has transformed significantly, especially in making things safer, faster, and easier to use. Developments in new technology like ‘Layer 2’ solutions, which includes Optimistic and Zero-Knowledge Rollups, help the Ethereum network handle more transactions at a decreased cost. Adding to this, on-fungible tokens (NFTs) are no longer just about digital art. They are also used for event tickets, property deals, and even verifying someone’s identity, making cryptocurrencies more useful in everyday life.

With the volatility of cryptocurrencies, stablecoins were introduced in 2014 to limit risk while also offering the benefits of crypto. There have been significant advancements in stablecoins revolving around making them safer and more reliable. What’s more, the way in which the assets backing these stablecoins are managed has improved, ensuring they can really stay pegged to other stable assets like the US dollar. Another innovation has involved integrating stablecoins with the traditional financial systems, which helps in making transitions between digital and regular money smoother. These innovations have also helped in making transactions faster and cheaper.

Additionally, blockchain technology has transformed the finance industry, working as a decentralised ledger, with each transaction recorded and all participants having visibility into this activity. With this transparency, fraud and errors have decreased as those involved are able to verify the transactions.

Blockchain technology has gone beyond the finance sector into new industries. For instance, it has begun to merge with artificial intelligence (AI) to improve how data is analysed and enhance security across healthcare and supply chain sectors. This combination allows for smarter, real-time decision-making and more robust fraud detection. Furthermore, its role in the Metaverse is a game changer as it not only secures digital identities and manages virtual communities, but it is also creating new ways for people to interact and engage in transactions in this virtual space.

The future of general cryptocurrencies and stablecoin

The digital assets landscape is continuously changing. While cryptocurrencies are gaining traction as a form of payment, there are a few important steps that must be taken to make it a conventional payment method. First, clearer regulations and laws worldwide are needed that provide safety for both businesses and everyday shoppers. Second, improving how digital wallets work is critical in order to make transactions simpler and faster. Finally, an increased understanding of the benefits of using cryptocurrencies is needed, which can be achieved through educational campaigns and providing real-life examples of how to use digital currencies.

What does the future of blockchain look like?

Over the next five years, making blockchain work smoothly across different platforms and industries is undoubtedly a major priority. This interoperability between different blockchain platforms will allow for smoother communication and data transfer across various systems, enhancing the technology’s utility and making it more user-friendly. As different industries adopt blockchain, standardised protocols and systems are likely to develop to make it easier to implement and manage.

What’s more, blockchain is expected to become even more integral to business processes and everyday transactions. As the technology matures, it is likely to be integrated into the systems of more companies across different industries. Blockchain’s ability to offer transparency, security, and efficiency will drive this wider adoption.

Regulation will also play a significant role in shaping the future of blockchain.  Evidence of this is already apparent, with the introduction of the Blockchain Regulatory Certainty Act which encourages further innovation by supporting the development of decentralised platforms and services which are vital in fostering an inclusive financial system. However, as blockchain becomes a more common part of critical industries like finance and healthcare, clearer regulations and standards are needed to ensure that its implementation protects user data while also complying with international laws.

Ultimately, the digital assets ecosystem is promising and has introduced various benefits to not only the finance industry but also to wider sectors. As innovation continues and technology develops, regulations are vital in keeping the trajectory of digital assets moving upwards.