What Are Crypto Assets?

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Crypto assets are a type of digital asset that use cryptography, peer-to-peer networks, and a public ledger to create new assets and verify and secure transactions without an intermediary or central bank.

Crypto assets often have one or more of the following characteristics:

A medium of exchange (similar to fiat currencies);
A feature specific to the company or issuer; or
An ownership or profit interest in a company.

Many people use the term “cryptocurrencies” when referring to crypto assets. However, while many crypto assets are digital mediums of exchange (and therefore function similarly to currencies), not everything referred to as a cryptocurrency is a digital medium of exchange, but may be a crypto asset with other characteristics.

In this article, we use the term “cryptocurrency” to refer to all crypto assets that function as digital mediums of exchange.

Common types of cryptocurrencies
The field of cryptocurrencies is constantly expanding – as of January 2021, there are more than 4,000 cryptocurrencies! While it would be difficult to list them all, there are some digital currencies that are now quite well-known.

This image of a person typing on their smartphone while a Bitcoin symbol hovers above them represents the popularity of certain cryptocurrencies like Bitcoin, Bitcoin Cash, and Litecoin, and shows the importance of doing your research before investing in crypto assets.
Bitcoin is often referred to as the trendsetter among cryptocurrencies. Mainstream financial publications publish the Bitcoin exchange rate as a ticker on their websites, and the cryptocurrency gets the most coverage in the media. Since interest in Bitcoin really took off a few years ago, there has been more discussion about other cryptocurrencies such as Litecoin, Ethereum, Bitcoin Cash, and others.

Risks associated with crypto assets
In general, it can be difficult for people to find a marketplace where they can easily buy and sell their holdings at a consistent price. There are also liquidity, security, and volatility risks associated with crypto assets, which can contribute to sharp price fluctuations.

Moreover, crypto assets are created and circulated online. Companies and individuals can remain anonymous, easily conceal their identity, or be based outside the country where you purchased the asset. If you do not know who is responsible to you and your investments, it may be difficult for you to pursue them legally if you have a problem with a crypto asset offering.

Finally, no crypto asset is guaranteed. You could lose all the money you used to purchase the crypto asset.

How crypto assets are bought and sold
There are many ways you can buy, sell and store crypto assets. For example, you can buy crypto assets directly (e.g., on a peer-to-peer or P2P basis) and store them in digital wallets to which you alone have access. Digital wallets are encrypted with a password, which can give investors a greater sense of security. However, there have been cases where people have forgotten their password or deleted their wallets, leaving them without access to their invested dollars. Depending on how secure your wallet or password is, there is also the possibility of both being hacked and the hacker gaining access to the crypto assets stored in them.

This image of a masked person holding a smartphone with a cryptic blue background represents the possibility that digital wallets can be hacked and the hacker can gain access to the crypto assets stored in the wallet.
Crypto assets are also available through trading platforms, Initial Coin Offerings (ICOs), Initial Token Offerings (ITOs), and mutual funds. These are all described later in this article.

Many crypto assets and online trading platforms are currently unregulated. This means that the purchase, transfer, and sale of crypto-assets is outside the protections that securities regulators can provide. For example, because crypto assets can be traded in a variety of ways and at any time, it can be difficult to determine whether you are buying or selling crypto assets at a fair price. Regardless of how you choose to buy and hold crypto assets, you should keep in mind that it may be difficult to withdraw your money.

Trading platforms for crypto assets
Online platforms, apps, and exchanges (trading platforms) for crypto assets allow you to buy and sell crypto assets without the need for a P2P transaction. As mentioned earlier, it is important to note that trading platforms for cryptocurrencies are often unregulated. Therefore, these trading platforms may lack important investor protections, such as safe handling of customer funds, safe custody of assets, protection of personal data, pre-trade disclosure, measures against market manipulation or unfair trading, and other harmful practices.

Remember that a trading platform that allows trading in crypto assets or interests in crypto assets that are securities or derivatives must comply with securities laws. If you come across a trading platform that you suspect is operating illegally, report it to the BCSC immediately.

If you want to know whether a trading platform is registered with a securities regulator or recognized as a securities or derivatives marketplace or exchange, you should first check with a securities regulator. If you would like to contact someone at the BC Securities Commission, you can find our contact information here.

If a platform is registered or recognized, it is subject to requirements relating to its operations, risk management (including the use of appropriate security measures) and the custodians it uses to hold client assets. It must also act honestly, fairly and in good faith with its clients, including when acting on behalf of its clients.

Initial Coin Offerings (ICOs) and Initial Token Offerings (ITOs).
ICOs and ITOs are relatively new ways for companies to raise capital by offering crypto assets – often in the form of tokens or coins.

There are several risks associated with purchasing ICOs, including the following:

Many ICOs are startup concepts with no business or operation behind them.
If the offering is not subject to securities regulations, there are no disclosure requirements and this may make it difficult for you to evaluate the offering.
It may be difficult or impossible to get a full picture of the ICO’s goals before you invest.
The value of the coins and tokens in the ICO can be speculative. The value can rise and fall drastically, and the purpose of the coin may never be achieved.
Click here to learn more about the risks of buying or investing in ICOS.

Cryptocurrency Funds
Cryptocurrencies are also available through cryptocurrency funds – funds that give investors access to cryptocurrencies without owning the coins directly. Cryptocurrency funds are vulnerable to risks associated with the cryptocurrency they invest in, such as market volatility, cyberattacks, limited regulation, and underlying reliance on technology. These funds must be managed by registered investment fund managers or receive exemptions from such registration in order to operate in Canada.

It is also important to note that cryptocurrency funds offered to BC investors must comply with laws. If it is a private fund, it may not be accessible to retail investors unless they can claim an exemption.

Investment fraud associated with crypto investments.
The volatile and often unregulated nature of crypto investments means that investors can fall victim to investment fraud in a number of ways. For example, a scammer may claim that they will use your money to purchase digital currencies and then cut off all communication once you have transferred your money to them. Scams also include fake investment products, fake websites that pretend to sell investment packages, and fraudulent cryptocurrency exchanges. Learn more about the typical characteristics of a crypto scam.