In this post I wanted to explore some of the risks that people and businesses who invest in virtual assets face, and how this compares with what traditionally is thought more as physical assets. As the world moves more into the digital age, virtual assets are becoming more common and more popular, and with good reason. Understanding the risks is therefore very important.
Before I cover the 5 types of risks and how they apply, let's first make sure we all understand what are physical assets and what are virtual assets. Note that those lists aren't meant to be exhaustive.
Physical assets are things that you can hold in your hand, or see in the real world. Value is tied to that object. Here are some popular examples:
- Real estate - There's no question that for most people, their home will be their most valuable physical asset.
- Art - Even though the art world is concentrated at the top 1%, it's still a vast and very valuable class of assets.
- Antique cars - Car buffs that also manage to come into money tend to like collecting antique cars which hold their value well.
On the other end of the spectrum, virtual assets are things that hold value without being tied to a physical object. Here are some examples:
- Stocks - Even if you still hold a stock certificate, the value of company stock isn't tied to a physical object.
- Bonds - Similarly, you can hold bonds in an account and its value will be shown as digits on a screen, without forcing you to hold a physical object in your hands.
- Cryptocurrencies - Crypto like Bitcoin also holds a value without being tied to an object.
- NFTs - On the more speculative side, non-fungible tokens aim to place the value of an image or video on the actual digital representation rather than a framed photo.
- Game accounts or objects - While it may not seem like something of much value, people have sold World of Warcraft accounts on eBay for thousands of dollars. Similarly, some games and virtual worlds allow people to buy and sell in-game assets for real world cash.
Now that we defined what each type of asset is, let's go over the 5 most common risk types and see how they apply.