How to tokenize assets using blockchain technology?
How do you tokenize assets using blockchain technology? Well, first of all, you need to know what these terms are. Tokenization is a unique way to digitally represent an asset. Pretty simple, isn’t it? What a token is and how you can use it can vary greatly. The key idea is that tokenization takes an asset and allows it to be commodified.
Shares
Shares are a form of tokenization. They are a store of value and represent a certain percentage of ownership of a business or company.
Money
Believe it or not, money used to be held on the gold standard. In other words, banknotes such as the US dollar represented an amount of gold. This not only proved to be more practical than paying in physical gold, but it also supported the value of the currency, helping to legitimize its value.
Divisions
This highlights one of the main advantages of tokenization, it allows you to share. Take something large and complex and transform it into a form that can be easily divided into smaller, more accessible parts.
For example, let’s say you wanted to buy a beach house, but couldn’t because of how much it costs. Or maybe you don’t want to pay for something that you’ll only use for a few months of the year.
With tokenization, you can create a company to buy a house, and then you can ask 3 of your friends to help you pool the money in the company. Now, if there are 4 of you, you can split the cost in 4 ways proportional to the amount of time you would have used the beach house anyway. It’s a way to get what you wanted without the hassle of buying the whole place.
So why do you need to use tokenization? Well, in this situation, you’re lucky to have 3 friends that you could coordinate with to make it happen. But if you didn’t, then this is where you could use a blockchain-based system, specifically using the unreliable aspect of blockchain technology. So, how to tokenize assets using blockchain technology?
Tokenization and blockchain.
The concept of asset tokenization itself only really gained prominence with the advent of smart contracts combined with blockchain technology. Both asset tokenization and blockchain have become the foundation of much of each other’s value. As with the beach house example, if you trust everyone you deal with, then there is no need to use such an advanced system, you can take everyone’s word for it.
By integrating blockchain technology, you can leverage the value of what is possible with tokenization. You no longer need to trust everyone you do business with. The advantages of blockchain technology include:
Greater transparency; there is a clear distribution of ownership rights to different wallets. Everyone knows who owns what and what they are entitled to.
Enhanced security; as with other blockchain applications, cryptography is built into any tokenization from the ground up. By their very nature, they are protected by mathematical cryptographic algorithms
Improved traceability; like Bitcoin, given that blockchains are not trusted, most blockchains allow users to see transactions as they are made. The vast majority of tokenizations are on similar platforms, and those that are not on these platforms have mathematical proofs to ensure accountability.
Increased efficiency and speed; by eliminating the middleman, tokenization increases speed and reduces costs. This limits the bureaucracy, no papers and transactions are executed at the speed of the consensus protocol.
Cost reduction; finally, given that there is an elimination of middlemen, the only costs associated with transactions are the costs of the network in which you operate. As a rule, this is significantly less than the fee for brokerage services.
Still not sure how to tokenize assets using blockchain technology? or do you have a specific project in mind? Contact us and we will help you!
