Introduction to digital assets: The essence and operation mechanism of Crypto Assets

Why it is important to understand Crypto Assets

The financial world today is undergoing a profound transformation. In this transformation, Crypto Assets are gradually changing our understanding of money as an innovative means of value exchange. To participate in this ecosystem, it is essential to first understand what digital encryption assets are and how they operate within decentralized networks.

Core Features of Crypto Assets

Crypto Assets are essentially digital properties protected by encryption. Unlike traditional financial systems that require banks or payment institutions as intermediaries, these assets allow users to trade directly through a peer-to-peer (P2P) network. This innovative approach eliminates the reliance on centralized institutions, granting users unprecedented financial autonomy.

Crypto Assets can be transferred around the clock and across geographic boundaries, with relatively low fees. These features make crypto assets an ideal tool for international transactions and remittances.

How Crypto Assets Are Born

In 2009, an individual or a team created the first Crypto Asset—Bitcoin (BTC) under the name “Satoshi Nakamoto”. Since then, thousands of different Crypto Assets have emerged, each with its own unique features and use cases.

From the initial concept of a medium of exchange, Crypto Assets have evolved into tools involving decentralized finance, artificial intelligence, gaming, governance, healthcare, digital collectibles, and more.

How Decentralized Networks Ensure the Security of Crypto Assets

The role of network architecture

Most Crypto Assets use a decentralized architecture maintained and verified by thousands of computers (referred to as “nodes”) to handle transactions. This distributed network collectively records a public ledger known as the blockchain.

Every time a transaction is made, the nodes in the network must collectively verify and confirm the transaction. Each node keeps a complete copy of the blockchain and updates it when new data is added to the ledger. Once the transaction is verified and confirmed, it is permanently recorded in the blockchain database and cannot be altered.

This decentralized design offers excellent security guarantees—there is no single point of failure that can be exploited by hackers. If a node attempts to validate invalid transactions or behaves improperly, it will be quickly expelled from the network.

The protective role of encryption

Cryptography technology is the cornerstone of protecting Crypto Assets. It is responsible for:

• Protect transaction security
• Maintain data integrity
• Control the generation of new assets

When users operate wallets and conduct transactions, a digital signature is generated using the private key. After the network verifies the validity of the signature, the transaction is included in a new “block.” Blocks are linked together in chronological order, forming what is known as the blockchain—a continuously growing ledger of transactions. Each block contains a unique list of Crypto Assets transactions.

Overview of Market Leaders

top assets ranked by market capitalization

As of November 2024, the following five assets dominate the market:

Bitcoin (BTC) — As the first and most well-known crypto asset, it was created by Satoshi Nakamoto in 2009. Bitcoin uses a proof-of-work mechanism, where miners compete to validate transactions and earn block rewards. BTC has a hard supply cap of 21 million coins, which gives it the reputation of “digital gold.”

Ethereum Token (ETH) — The native asset of the Ethereum blockchain, founded by Vitalik Buterin. Ethereum allows developers to build decentralized applications through smart contracts. The network initially used a proof-of-work consensus, later transitioning to a proof-of-stake mechanism to improve efficiency and reduce energy consumption. Under proof-of-stake, users maintain network security by validating transactions and staking ETH.

BNB Token — Launched in 2017 as an ERC-20 standard token, migrated to an independent blockchain in 2019. The BNB Chain provides a platform for smart contracts and decentralized applications, offering lower fees and faster processing speeds compared to other blockchains. The automatic burn mechanism of BNB limits its supply, creating scarcity.

Tether Stablecoin (USDT) — Launched in 2014 by Tether Limited, a stablecoin pegged to the US dollar. Each USDT is backed by a corresponding amount of assets held in reserve by the company. Stablecoins like USDT eliminate the additional costs and delays associated with converting Crypto Assets to fiat currency.

Solana Token (SOL) — The native asset of the Solana blockchain. Solana is a third-generation public chain that uses a proof-of-stake mechanism and was launched in 2020. It achieves high throughput, fast transaction processing, and low fees through multiple innovations.

Understanding the Meaning of Market Capitalization Indicators

Market capitalization is a key indicator for measuring the relative scale and value of Crypto Assets:

Calculation Formula: Market Value = Circulating Supply × Current Price

Market capitalization is used to rank and assess Crypto Assets. A high market cap typically suggests relative stability and popularity; a low market cap indicates higher speculative risk or price volatility.

But remember, market capitalization is just one of the evaluation metrics. A complete assessment also requires examining:

• Underlying Technology Quality
• Project Team Strength
• Token Economic Model
• Actual Application Scenarios

Practical Tips Before Participating in Crypto Assets Trading

The Importance of Information Acquisition

Before investing funds, it is essential to conduct thorough research. The “DYOR” (Do Your Own Research) principle emphasizes the necessity of this. The learning content should include:

• Basics of Blockchain Technology
• Different Asset Classes
• Market Dynamics
• Factors Affecting Price

Utilize resources such as books, blogs, podcasts, and forums to gain in-depth knowledge. Focus on studying the technology, team composition, and economic model of the target project to make informed decisions.

Beware of fraud tactics

Despite the innovative opportunities that blockchain offers, it also attracts criminals. Common scams include:

• Ponzi schemes and pyramid selling
• Phishing Attack
• Fake Airdrops and Lotteries
• Multi-signature fraud

Protective measures:

• Carefully verify the authenticity of social media accounts
• Use a strong password manager
• Offline storage of private keys and recovery phrases
• Consider splitting recovery phrases to enhance security

Cautious investment strategy

The crypto market can be highly volatile, especially with small coins. It is recommended to start with small investments, with amounts that are within the range of acceptable loss. This way, you can accumulate experience while avoiding excessive risk.

Track market trends

The crypto assets sector is developing rapidly. It is crucial to keep an eye on news, technological advancements, and regulatory changes. Make investment decisions only after thoroughly understanding the projects.

Choose a trusted trading platform

Choosing a platform with a good reputation is a key step in protecting your assets. Evaluation criteria include:

• Trading Volume Scale
• Fee Level
• Quality of Customer Support
• Security Measures
• User Interface Usability
• Tradable Assets Range

The Discipline of Risk Management

Before any investment, it is essential to learn risk management. Suggestions:

• Only invest funds that you can afford to lose completely.
• Set stop-loss orders to limit potential losses
• Diversified Portfolio

White Paper: Key Document for Project Assessment

In the crypto ecosystem, the white paper is a technical document released by the project team, detailing:

• Project Goals and Principles
• Technical Architecture
• Team Information
• Token Economics
• Development Roadmap

The white paper serves as a project guide, explaining its purpose and potential value. Investors often evaluate the legitimacy and prospects of a project by studying the white paper.

However, it is important to note that whitepapers do not have a unified standard or regulatory requirements, which may result in misleading or inaccurate information. Project teams can write anything, and users are responsible for verifying the authenticity of all claims.

The Impact of Crypto Assets on the Financial Ecosystem

Crypto assets represent a new form of money and a new way of trading. Opinions on its prospects vary—some believe it will replace the traditional financial system, while others see it as a complement to the existing system.

In any case, Crypto Assets have had a profound impact on the financial and technological fields, and this influence is bound to continue to expand. Understanding what cryptocurrency is and how it operates has become an important part of modern financial literacy.

Extended Reading

• Blockchain Basics: Detailed Explanation of Technical Operations Principles
• Mining Mechanism: How to Maintain Network Security
• Proof of Work: In-depth Analysis of Consensus Mechanisms
• Beginner's Guide: Introduction to Crypto Assets Trading