According to Statista, The global Blockchain market is expected to grow in multitudes with a market size of over 39 Billion USD by 2025.
Tokenization, a part of Blockchain technology is what we are about to discuss in this blog.
Inside The Blog
Tokenization- The Definition
Tokenization is a digital marketing process in which two or more people share ownership and rights of a specific asset.
With the help of tokenization, one can transform indivisible assets into token forms and get tokenization benefits.
There are different types of tokenization, but each one of them works on the principle of fractional ownership.
For example, a person can be 1/20 owner of an asset, in this way one does not have to invest a huge sum of money and still have the rights of the owner.
This can be only possible with tokenization because it provides the most practical and satisfactory solution to traditional solutions.
Therefore, almost all cryptocurrency experts are expecting even better usage and technological advancement of tokenization.
Also, it is highly recommended to upgrade your skills in cryptocurrency, in the upcoming days it will be an advantageous skill in the digital market.
Understand The Technology Behind Tokenization
The tokens are implemented using smart contracts in blockchain technology.
It is also widely known as token contracts, and they are computer programs that assist in verifying the rules of business and enable transferring values from the wallet of one user to another.
There are two simple methods to transfer values with the help of a smart contract-
- The first model is the UTXO: It operates by determining the total amount of cryptocurrency that is left in the user’s account right after a successful transaction. The model was introduced by implementing bitcoin technology. Other cryptocurrencies use this model
- The second model is Account-based: When the request for the transaction is made, the nodes that are positioned as network validators debit the requested amount from the account of the sender to the receiver’s account.
Types of Tokens
Well, there are five major types of tokens that you must know before you jump into it, here is the essential explanation about the token types.
Security Tokens
They are the types of tokens that validate the ownership of an asset or its right.
It is the digital model that concerns assets. Also, they have all the other benefits of traditional security as well.
Additionally, the security token has the flexibility to program with the help of an expert cryptocurrency developer so we can add unique traits and features that meet our requirements.
For example, one can trade with the token of real estate and pay via the cryptocurrency of that chain.
Platform Tokens
The platform tokens operate in the blockchain to assist in delivering the decentralizing application.
For example, one can interchange the Daaps built on the network of Ethereum with the Dai token.
Also, it can be widely used as a platform token in the Ethereum network.
Utility Tokens
The Utility token is the most basic kind of token in the blockchain network.
They are utilized for various purposes such as accessing the services, powering the consensus program, or regulating transaction fees, they can also be used for having a vote in new blockchain developments.
More importantly, they function as a governance token and are critically utilized in the decision-making process of the DAOs.
Fungible Tokens
Fungible tokens are the basic type of token that can be replicated or easily replaced.
Converting the fungible assets into the token is a very easy process because you just have to divide them into fractional units.
One of the most familiar types of fungible tokens is gold. There are several Fungible token converters available on the internet that has an inbuilt abstraction layer that helps them in facilitating interoperability and providing platform autonomy.
Non-Fungible Tokens
Some tokens cannot be divided into fractions, but one can convert them into non-fungible tokens so one can own complete or partial ownership of that asset.
The non-fungibles tokens are special because we can also track the record of the ownership on the blockchain.
This token prevents the replication of the token. Also, a non-fungible asset can be converted into a token, this process starts with providing an unchangeable digital signature. It helps in verifying the authentication of the asset.
Future of Tokenization in Crypto
The utilization of tokens, from asset tokenization to real estate tokenization is transforming the process of interaction with assets of value in a highly remarkable fashion.
The main feature of blockchain is its permission to express and store any kind of asset on a blockchain.
It also democratizes access to assets while maintaining online transparency and security.
One of the major challenges currently faced by crypto is the varying rules of the sale governing, distribution, and management in different countries.
To tackle this problem, it will take a big-scale effort from multilateral companies and investors to build a global, worldwide single-value transfer system.
Experts are hopeful for this upcoming achievable day. With the popularity of crypto amongst the people and government bodies, one day everyone will acknowledge the astounding power and utility of the blockchain.
And the tokenized future is not so far from becoming a reality.
Advantages of Tokenization
Now, we are familiar with the term tokenization and its functions. But it is also important to know its advantages and how it helps us to grow more capital. The followings are the advantages of the tokenization
Assets Divisibility and More Liquidity
One of the best advantages of tokenization in the method of blockchain is that it unlocks the underlying assets to a wide range of people.
The divisibility nature of the assets has major credit for this success.
Only because of this feature now we can become one of the investors for an asset that has a potential investment.
Thus it easily removes the problem of liquid premium of difficult selling assets like artworks.
Tokenization also enables a larger geographical reach because of the inherently global nature of the blockchain.
Any person with a personal computer and a web browser can exchange and keep track of the asset, no matter in which corner of the world they are present.
The divisibility character of the asset also comes with the advantage of ownership sharing. For example, one can share a mansion with 20 other people by agreeing on the duration and assigned personnel.
Faster and Cheaper Transactions
Because of the assistance of cryptocurrency tokens we don’t have to waste any time on the intermediaries that are involved in the transaction.
For example, if we tokenize the deed of the property and represent it on the blockchain, then the interested party can directly make the transaction via deed with cryptocurrency.
The smart contract of the blockchain will transfer the deed to the buyer.
This process removes the requirements of various authorization bodies such as lawyers, banks, accounts, and brokerage commissions.
And never forget that the crypto tokens are on the blockchain network, which means you can trade 24/7 from anywhere around the world.
Transparency
In a blockchain, all of the transactions are transparent and available to any computer interacting with the chain.
That means you can dig up the previous owner’s history of an asset, thus increasing trust among potential buyers.
Moreover, blockchain tokens also benefit from being immutable as all of the transactions are verified by the nodes.
In blockchain technology, all the transactions that have been made are transparent and stored in any computer that interacts with the chain.
It means that if you want, you can search the history of the previous owner of a concerning asset.
This helps in building trust among the potential buyers of an asset. Moreover, the blockchain tokens have the benefit of not being copied because all the transactions are confirmed by the nodes.
Benefits of Blockchain Tokenization in The Enterprise Segment
Blockchain technology provides flexibility, transparency, and security to the business. These qualities are rarely offered by business solutions.
So, let us see in-depth the benefits of implementing tokenization in a business.
- Significant decline in transaction time for payment and settlement.
- Increase in shareholding because of tokenization of intangible assets like copyrights and patents. This also helps in determining the actual value of the assets.
- The reduction in dependency of companies on banks and other intermediaries bodies. Instead of them, a stablecoin can be used for the transaction because it is backed by a real asset.
- A token based on loyalty can be used as an incentive for purchasing company products. Moreover, a loyalty token promotes transparency and efficiency for the user.
- Projects on renewable energy are highly costly, so using tokens against them will broaden the investor pool along with building trust.
Challenges For Tokenization
- As the world is slowly adapting to blockchain technology, a project involving blockchains like tokenization is increasing in demand. also, tokenized assets have similar functions as financial securities. The tokenized assets are peculiar because they are not subjected to rules. Although most countries are encouraging the implementation of blockchain-based projects, some are restricting their usage.
- Another major issue is how to manage the security of token-backed assets. There is no leader in tokenization so when investors collectively own an asset the person in charge of the asset remains unsolved. There should be someone to manage an asset like big properties.
- If the value of assets for a token, such as gold-backed tokens, disappears. Then there’s the problem of unclear regulations when the real world and blockchain systems collide.
Even though blockchain is a decentralized system that works well, we still require a third-party or centralized system.
Conclusion
Tokenization can be highly beneficial to both individuals and businesses.
Blockchain tokens have the potential to transform modern businesses by improving security, transparency, and efficiency.
Despite many regulatory problems, blockchain tokens may soon lead the digital revolution when the rules and regulations are clarified.
Decentralized autonomous organizations can help manage assets.
This process of tokenization will enable the company to provide quicker transactions and price transparency to all users on the network.
As a result, its credibility and confidence in the sector have grown.
You are now familiar with how effective and authentic tokenization can be. It is being used in operations by even big businesses. Learn about cryptocurrencies to be prepared for the future.
FAQs
What is tokenization and how it works?
For tokenization to function, valuable data must be removed from your ecosystem and replaced with these tokens. Most companies store some sensitive data in their systems, such as credit card details, personal health information, or security numbers that need to be safeguarded
How does asset tokenization work in blockchain?
Asset tokenization is the process through which the tokenization of digital or physical assets takes place. The issuing member generates digital tokens on a distributed ledger that represent either digital or physical assets.
What are the benefits of tokenization?
Tokenization is a feature that uses blockchain technology to secure assets, both market and non-market. Tokenization has several advantages, including enhanced liquidity, better settlement, reduced costs, and excellent risk management.