Editor’s Note: Jan van Eck, CEO, and Gabor Gurbacs, director, digital assets strategy at VanEck, recently responded to questions regarding the potential and the challenges of the digital assets and current bitcoin boom. The following Q&A includes highlights from this wide-ranging discussion.
What are digital assets?
Digital assets are based on a shared database technology called “distributed ledgers” and represent a variety of uses. Cryptocurrencies, like traditional currencies, are meant to be a store of value. Bitcoin is the most widely recognized cryptocurrency, and has become known as a form of “digital gold.”
Not all digital assets are designed to be currencies. Rather, many are similar to shared applications that are either a technology platform or have a specific function. For example, digital assets can track land ownership or music rights, or allocate resources like computer storage or Wi-Fi bandwidth. They can also act as a platform for “smart contracts.” Tokens work like airline miles or Starbucks rewards—they are only valuable in a specific program or system.
Basically these applications are technology investments. One has to determine if this is the next way of structuring data on the Internet. The appeal is being “permissionless” (anyone can join), having a lower cost, and not being controlled by a company. Digital assets can proliferate like smartphone apps, resulting in fast growth.
Skeptics view digital assets as opaque. What can they be used for and who will accept them?
Actually, digital assets are radically transparent, with publicly available codes and transactions. Codes can be copied by virtually anyone with the technology and desire to do so. Digital asset users are trackable by public keys (although personal identities are confidential).
Digital currency or coins have countless applications. The use of coins and how they are accepted are typically described on the applicable website, and on sites like Medium, Reddit and Telegraph. The technology is also arduously explained on YouTube.
How do digital assets have value without cash flow?
Certainly there are investors who value assets based solely on current cash flow. However, assets exist (such as currencies) that are priced based on crowd-perceived value. Precious metals and modern art are obvious examples. Will a Monet, Basquiat or a Degas go to zero?