Warrior Trading Blog

Digital Asset Definition: Day Trading Terminology

Digital Asset

A digital asset is any information that is stored digitally and has value. This can include, but is not limited to, videos, software, data and graphics.

Issues surrounding the legality of the ownership and use of digital assets have grown exponentially alongside the importance of computing and the Internet.

In the financial world, issues with digital assets are particularly important when discussing the technology sector and blockchain-related phenomena, such as cryptocurrencies.

Defining Digital Assets

Many of the issues surrounding digital asset management arise from the difficulty in creating a strict definition of what is and is not a digital asset.

At the core of various legal definitions of digital assets are the twin concepts of ‘value’ and ‘digital storage’.

Foremost a digital asset must have some form of exchange value, such as the ability to generate revenue or capital value. Personal information or images, for example, may have a high personal value, but are not marketable assets in the strict legal sense.

Digital assets must also be stored in a digital format to be considered to fall under strict legal definitions. This means that the information must be formatted so that it can be transfered digitally, through ‘downloading’ and ‘uploading’, and not just in a physical form, on a DVD or CD for example.

It is this twin state of being both valuable as an asset and easily transferable in digital form that leads to the many issues surrounding the use and ownership of digital assets.

Digital Assets in Trading

Day traders will most often deal with the issues surrounding the use and ownership of their digital assets holdings when they are valuing companies that deal heavily in digital technology.

Many of the world’s most valuable technology companies are ultimately based on relatively simple software.

Facebook, for example, is based on software that allows users to present images and information according to a shared format. This basic information-sharing software is then supported by vast systems for the collecting and sorting of user data, which is used to generate revenue through advertising.

The issues arise when determining how much of the information that is generated by Facebook is owned by them, the end user or the public, and to what degree competitors can emulate Facebook’s revenue-generating digital information.

Other companies can, and have, copied the basic concept of Facebook, which is not overly complicated. However, if a rival too closely copies the formatting of Facebok’s digital software, they could be successfully sued.

Similarly, the information that Facebook collects from its end users may not all be used to generate revenues, and we have witnessed recent pushbacks against Facebook’s practices when it comes to the storage and use of end user data.

All of these factors have and will continue to influence the value of Facebook in the market, as it will other companies that are heavily involved in digital information.

The issues surrounding digital assets are also important when considering the value of various cryptocurrencies and blockchain-related companies.

Most cryptocurrencies and blockchain ventures are based on the decentralized collection and dissemination of information, so day traders must consider how the digital assets involved are purported to create revenues or value and how the legal landscape with respect to these digital assets will change over time.

Valuing digital assets and attempting to foresee the future course of technology and related legal issues can be extremely challenging, and the issues surrounding the ownership and use of digital assets are only set to grow in the future as the global economy becomes increasingly interconnected and digitized.

Final Thoughts

While many day traders could quite easily go through their entire professional careers without needing to deal with the issues surrounding the use and ownership of digital assets, those day traders who deal in the technology sector or blockchain-related phenomena are bound to face one or more of these issues.

The value of digital assets can change dramatically based on small alterations to relevant legal codes or regulations, as well as shifts in the underlying technology. Day traders who have a grasp of the nuances involved in the valuing of digital assets are well-placed to profit from the often volatile technology and cryptocurrency sectors.