Tokenization: The Force Behind the Blockchain Technology
In the current financial world, almost every single thing you own is tied to your name. This includes your house, stocks, cars, or your bank account. In the Blockchain evolution, another high concept has emerged: Tokenization.
So, what is tokenization? It’s is a feature in the Blockchain technology that plays the role of platform accessibility and identification. It’s the process of converting individual and corporate assets into a form (token) that can be recorded, moved or stored in the Blockchain platform.
Tokenization simply converts the value of a physical or an intangible object into a token that can be used in the platform systems. For instance, when selling and buying Bitcoin, you need tokens to show proof of ownership. For instance, you need tokens to prove ownership of coins and also to be able to buy and sell cryptocurrencies and other assets.
In the Blockchain platform, tokens or coins are used to show the identity of various assets. For instance, one of the major crypto tokens is Ethereum. Others include Litecoin, EOS, Dash, and other cryptocurrencies.
Bitcoin is more acceptable and highly valued coin than other forms of cryptocurrency. In this case, the tokens are used to represent money. However, they can also be used for other purposes.
Currently, there are numerous Blockchain products on the market. Each promises to offer special and unique solutions. However, many of them are still in the process of development. Below are some examples of Blockchain tokens available in the market today.
Dash-Digital Cash is a unique product of Bitcoin. Dash is specially designed to offer more instant transactions and privacy. It is a self-funded Blockchain platform, and it features a governance model. Dash has witnessed some growth in market value and this has led to its featuring in major crypto telegram signals.
It’s a social platform that allows you to participate in its platform in and in return, you earn a reward. Its token is referred to as STEEM. Mainly, the token is used to reward the best content creators and curators on their platform.
It is a product of Zerocoin which was initially designed to improve anonymity in Bitcoin platforms. ZEC is the token for Zcash. All Zcash transactions are published on a public Blockchain platform. However, users have the option of using a privacy feature to hide some information such as the senders, amount being transacted, and the recipients.
It is an asset tokenization Blockchain platform that allows its users to convert tangible assets such as artworks or real estate into tokens. The Token can then be broken into small pieces making them easier to use or sell in the platform. LAToken is powered by LAT.
It’s a platform of social marketplace communities which allows its users to make storefronts for various types of services. The platform also will enable you to discover certain products, communities, and services that are important to them. The users or participants in the activities are in return rewarded by Knish which is the platform local token.
Those are just some of the few tokens under the Blockchain technology. Visit some of the major crypto exchanges platforms to find out more about various cryptocurrencies and their respective tokens.
Crypto tokens are used to represent transaction units that are created by standard templates such as those of Ethereum platforms which allow users to create their own tokens. This kind of Blockchain system works on the concept of decentralized applications or smart contracts. In this type of a system, a self-executing, programmable code is used to manage and process all the transactions that happen on the Blockchain platforms.
Over the years, more Blockchain investors are adopting public Blockchains such as Ethereum. Mainly, they use them to come up with registries that allow the recording and transfer of valuable assets such as real estate, diamonds, and securities. Various tokens then represent these assets.
Tokenizing such assets and securities such as bonds and stocks can help create more efficiency in capital markets and as well as eliminate friction.
It’s undoubtedly clear that tokenization can bring massive growth and diversification opportunities to the asset and security markets. Even though the technology is still new and possesses major legal questions, it is expected to bring numerous benefits to the business world.
Benefits of tokenization
Tokenization is here to address numerous issues. For instance, it makes the process of investing in assets such as real estate, bonds, stocks, and equities easier. The following are some of the most important benefits that come along for using tokenization in the Blockchain platforms.
- Removes illiquidity Barrier
Tokenization brings a great benefit to asset investments. It offers liquidity in major traditional illiquid assets. For instance, venture capital funds, real estate, and other investments require an investor to commit to those assets for over 5 to 10 years. With tokenization in the asset market, these major illiquidity barriers are possible to avoid, and there is a chance for coming up with new secondary markets.
- More and Clearer Regulation can be created
Majority of economies are still struggling with how they can classify and regulate cryptocurrencies. Economic regulators should adopt the new concept of tokenization for a more open, highly fluid, and easily accessible global markets for both security tokens and utility tokens. Regulators can now be able to come up with laws that allow investors as well as token issuers the freedom to proper and operate efficiently.
- Opportunities for Diversification
With security tokens representing the underlying assets, we can now be able to achieve diversification. Individual investors and other business organizations can now use tokens secured by real assets such as bonds, real estate, arts, stocks, and many more to diversify their holdings.
- Access to Wider Market for Fundraising
Coming up with digital tokens that represent both physical and intangible assets opens up more investments opportunities in the global market. For instance, from January to June 2018, more than $11.8 billion was created through ICOs. Tokenization has generated billions of funds by allowing companies to offer equity. This way, they will be able to reach a global audience.
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- Good for the Community
Also, tokenization allows investors to increase reach and availability. Assets can be divided into multiple municipal bonds and sold as tokens. This way, more people and the community can benefit from getting more accessible investment opportunities. Also, it can open up jobs in the community that can promote growth and development.
6. A Changing Economic Frontier
Tokenization allows new economic models in the cases of asset ownership. For instance, it will enable fractional ownership; here the investors can own a percentage of a specific asset. These ways, users can be able to purchase cheaper pieces of assets instead of having to buy them as a whole which is very expensive.
This can also allow diversification of risks that come along with owning the asset as a whole. For instance, if the asset is damaged or if it loses value, you may end up losing all your assets. Owning a part of several assets allows diversification of risk, and in case of an issue, you will not lose your assets.
Tokenization also allows easy means of transactions by eliminating territorial and personal barriers for asset owners. Tokenizing assets will attract new and global investment opportunities. For instance, tokenized securities can be sold globally since there are no territorial restrictions. Also, the fees charged for the trading will also be reduced.
Also, asset and security trading involves lots of documentation. Tokenization can help reduce some of the administrative expenses that come along with documentation. Smart contracts can be used to execute all the agreements instantly. Also, it will increase speed and safety measures involving valuable assets.
In some cases, small errors happen during documentation. This may include duplicate copies and dispelled documents. Tokens are unique and cannot be imitated, double spent, or copied. This way, we can avoid unlawful activities such as theft by stealing original documents or being sold unoriginal assets or securities.
The blockchain and asset tokenization has wholly changed major aspects especially in financial investing. With time, tokenization is expected to bring massive development in various blockchain platforms. Although it may take time to move some of the major physical assets into the blockchains, we believe it will come with numerous effects.
Also, bearing in mind that some countries have legal rules over property transfer, government authorities need to come up with new rules that allow token-based systems. For instance, secured lending rules can come up with rules regarding token ownership, registration, and transfers.
Tokenizing real-world assets possess a great challenge that needs innovative solutions beyond any ordinary technology. It’s evident how tokenization has brought numerous benefits in blockchain-based platforms. Without tokenizing, it would be impossible to trade cryptocurrencies as well as other assets and securities in any digital platform.
Blockchain technology benefits are numerous, and with tokenization in place, we can enjoy all these benefits with ease. Also, better crypto assets management can be achieved organizations adopt the efficiency of tokens across the globe.
Author Bio: Claire John
Claire John is a Crypto-enthusiast and a Tech Blogger. She is a regular contributor at Coin Review but this doesn’t stop her here. Her passion for writing drives her to utilize her diverse skill set to develop unique content and create efficiency to enhance her client’s experiences. You can find her on LinkedIn and Twitter.