Blockchain-based tokenisation of assets has opened a brand-new opportunity in the market for the growth and diversification of assets. There have been many such instances where investors and issuers have benefited, but still, there have been few who fear replicating this in their businesses.
So, here we will be elaborating on the process of tokenisation and how blockchain development is important for asset tokenization.
What is asset tokenisation?
Tokenization is the process of replacing sensitive data for the exchange of non-sensitive data elements or tokens. Tokens are a special kind of product whose values are unrelated and can be put into use over a database without involving the actual piece of sensitive data.
How does tokenisation happen over the blockchain?
Generally, till now only banks were used for tokenisation, but since the concept of digital tokenization emerged, blockchain technology came into play. In digital tokenisation, the banks are replaced by the blockchain infrastructure, and digital fiat currencies are replaced by cryptocurrency tokens. Apart from these the rest of the process is not much different, regarding how tokenization happens over banks or stock exchanges.
There are three important elements involved in tokenisation:
- Incoming asset (can be anything cash, intellectual property)
- Blockchain infrastructure
- Virtual assets (cryptocurrencies)
Types of tokenisation occur in blockchain world
There are different types of tokenisation that occur in the blockchain world and those are:
- Tangible asset tokenisation. These are set of assets that occur in physical form and hold monetary value of its own.
- Fungible asset tokenisation. These are digital assets which interchangeable with every equivalent token like a bitcoin is of value at par with another bitcoin and can be interchanged with its counterpart.
- Non-fungible asset tokenisation. These are designed to be a special type of tokenised assets that are not interchangeable whatsoever.
What are benefits of asset tokenisation on blockchain?
- Lesser intermediaries. The smart contract-infused blockchain-based tokenisation removes the role of intermediaries, as both the buyer of tokens and the issuer need to trust each other. Compared to the tokenization in the stock market, here it is possible to simplify the process of tokenisation that too while ensuring its safety and cost-effectiveness.
- Greater liquidity. One of the prime issues faced in asset tokenization was the lack of liquidity faced, as buyers and sellers used to take greater time to know each other and the veracity of tokens. Blockchain-based tokenization has made this process much smoother, as investors can leave the platform as per their wishes without worrying about the expensive early redemption. While this will lead individuals with high net worth and agencies to invest and build a global market.
- Easy accessibility. Blockchain-based asset tokenisation brings easy and higher accessibility, as fragmentation of assets to the minimum possible amounts in the form of tokens is possible through blockchain. While, this encourages investors to get a small fraction of shares in the form of tokens, due to the reduction of the minimum amount and period required to invest.
- Greater transparency. Tokenisation through blockchain offers transparency, whatever the rights and duties of the token-holder get embedded into the token’s attributes, contract, and details of ownership. Complete details regarding from where the token is purchased, what powers they have and other such details automatically come due to the innate nature of blockchain.
- Immutability. Immutability is one of the prime properties of blockchain, that gets passed onto the tokenisation process. The feature of immutability ensures that the data embedded in tokens can’t be manipulated and the asset information regarding transactions remains accurate. Due to these reasons investors need not fear loss of assets due to any theft, fraud, or hacking attempt as a token can always be tracked from their source.
Blockchain-based tokenisation offers the inherent advantage of immutability, decentralization, and easy accessibility. Blockchain experts at Rejolut say, that since blockchain is an inclusive technology, therefore we blockchain-based tokenisation will certainly assist other emerging technologies like AI. In the future, digital tokenization can be seen happening through blockchain, but it would require some time to be adopted on a large scale as it’s a comparatively new concept for many.
Zuella Montemayor did her degree in psychology at the University of Toronto. She is interested in mental health, wellness, and lifestyle.