Welcome enthusiasts. Are you ready to learn about Asset Tokenization with its key benefits? This 101 guide will lead you through the aspects of tokenization with supporting examples. Let us begin with the point where it all started.
Back in 2009, when Mr. Satoshi introduced an incredible technology called the blockchain, nobody predicted its success. And, the way it is accepted and used proves that the foundation is rigid. Now it has evolved to become a crucial part of the modern digital investment.
The term asset tokenization appeared in the second white paper of Bitcoin in 2012 by J.R Willet. The idea was to attach a fiat currency or a commodity to a token (a bitcoin-add-on) with a stable exchange rate and trade it on a platform.” Realcoin” or Tether is the first stable coin to connect and backed with a fiat currency US Dollar.
A token is a small entity on a blockchain with its unique address and value. The user can trade this token with any cryptocurrency or cash. The concept of tokenization opens a new door of opportunity. Let us study and assess the scope of asset tokenization.
So, what exactly is asset tokenization?
It is a process of converting your real-world asset into digital tokens and placing them securely on the blockchain. These tokens can now be traded similarly to cryptocurrency and backed with an underlying value.
Let's take an example to understand the concept-
Let us assume you own a condo worth 650,000 USD in Miami, and the area is 100 m². You convert the estate into 10,000 tokens of digital asset with the help of a platform like Blockgration. So, your property is on a blockchain, and trading takes place between several buyers and sellers, producing liquidity.
If we do the math:
Value of one token = 650,000/10,0000
= $ 65 per token.
With the help of tokenization, the property is available to several buyers for trading and investing.
So, when you present a physical asset digitally, it is known as Asset Tokenization.
What assets can I tokenize?
The tokenization process can include converting fungible or tangible assets into tokens. Tokenization is limited to some sectors, but sooner or later, it is going to make its way into several classes. Let us look at some real-world applications below-
Asset Tokenization of Real Estate
Look at the example mentioned above: we divided the property into several tokens to represent a digital asset. Tokenization allows partial ownership of the property and is similar to owning a share of any listed company.
Asset Tokenization of Metals
Yes, you read it correctly. Metal can also be a part of tokenization on the blockchain. The metal sector is a significant part of the economy. Digitalizing this resource might take it to a whole new level.
It can also include precious metals like gold, silver, platinum etc. You can invest in a fraction of gold rather than buying a pricey physical asset.
Asset Tokenization of Artistic Goods
It includes physical assets like artworks, jewellery, merchandise or music. The art of a significant value is famous for selling in the auctions for a high price. But, the asset tokenization of artistic goods is available for art lovers of all financial backgrounds.
It is also beneficial for the artists because they can present their art to a mass of people around the globe.
Asset Tokenization of Stocks
Tokenization of stocks is possible via various platforms to convert the shares into tokens on a blockchain.
You get an opportunity to trade these tokens with cryptocurrencies with a high trading volume and liquidity.
How asset tokenization be a better option?
So before discussing the merits of Asset Tokenization, we should discuss and compare it with the current system. Good management results in the growth of the value of an asset with a good return on investment.
When the process is simple, the chances of cheating or fraud reduce.
The payment process can be fast and secure. The role of banks is minimal, and the paperwork is next to none. The errors on the blockchain are less compared to human intervention.
Automation is a great tool to reduce cost, time and effort. When the payments reflect instantly in a user’s account, a sense of trust improvises within the system.
Tokenization can help to reduce intermediaries and third parties, sinking the scope of extra fees and hidden costs.
Privacy is a crucial factor for users. Blockchain provides this data security, and the details are shared only between the buyer and seller.
In simple words, an investment should bring profitable returns with ease of the procedure.
Tokenization improves the structure of information, and the number of buyers increases, enabling a variety of beliefs. It gives you a choice without worrying about the demand and the liquidity.
Benefits of Asset Tokenization
The comparison clearly states that tokenization can be a better option while investing in a digital asset. The process is simple, stable and efficient. The main point, it is for everyone.
But, the primary question can be: Why should I tokenize something? And the answer can be Why not?
The practical usage of bitcoin has proved efficiency and durability of the blockchain. As investors/traders, we want liquidity, demand and hefty returns.
Let us follow some of the benefits of asset tokenization-
Blockchain allows tracing of the ownership to its primary seller. The platform offers the historical data of the transactions to all the customers. When the information is available to all the
participants, it initiates validation and trust.
Liquidity refers to converting an asset into crypto without influencing the market price. So, how does tokenization improves liquidity? The fragmentation of the tokens allows many participants from various financial backgrounds to participate in the trading. No boundaries are involved, and a buyer can purchase an asset token anywhere.
The paperwork involved in the real estate transfers is ridiculous. If someone ever purchased a property, they know about certain costs involved. There has to be an intermediary such as a lawyer to transfer an asset in real-time. Sometimes, the process takes a lot of days.
But thanks to the asset tokenization and blockchain, you can buy/sell the tokens immediately. As soon as the trading takes place, the wallet reflects the transfer information.
The data once recorded on the blockchain is unchangeable. When a user buys or sells an asset, the transaction creates a unique copy on the blockchain. The details include all the historical information and ownership details. The particulars can neither be altered nor be changed.
To access any information on the blockchain, there are two keys: A public key and a Private Key. The public key is identical for every participant. But, the private key only allows a particular user to access the info. Hacking the complete blockchain is very challenging, and even if someone does, the private key is additional security to your assets.
Asset Tokenization eliminates the intermediaries such as lawyers, brokers and banks. The registration of the asset based on blockchain enables fast and secure transactions. Hence by adopting this technology, you experience a reduction in cost, time and effort.
Most of the processes can be automated, resulting in less administrative burden.
Blockgration Asset Tokenization
Now that you have brief information about the Asset Tokenization. The next step is to select the type of asset you want on the Blockchain. It can be a property, services, funds or any equity. Next, find a platform that will help you with all the procedures. Blockgration is a platform that operates to provide White Label Blockchain-As-a-Service Solution. We function and own multiple blockchain offering interoperable architecture. We support our users to convert their physical assets into tokens: hassle-free. Then, they are ready to trade in the secondary market successfully.
Blockgration and Safety
Our team of experts offers full-time counselling for your assets. We evaluate the investment and run it through volume and liquidity tests. Our KYC/AML compliance framework enables the trust of the regulatory authorities. We tend to apply the latest fintech solutions to avoid lobbying or hacking. The associations with the leading payment gateways allow the user to transform any crypto-asset into a tradable currency. The company offers wallet and liquidity solutions so that the participant experiences a stable and secure transaction. The transactions are peer-to-peer with no third-party intermediaries.
Blockchain is now popular among the masses, and asset tokenization is succeeding in its path closely. Tokenization is an innovative method to build wealth in the digital world. Numerous start-ups, organizations, artists and entrepreneurs are adopting this technology rapidly.
So what is the future of asset tokenization? We duly believe that it will alter the approach of asset management of today. Surely we will see new assets supporting the tokenization process and gaining trust.