Tokenization: The Foundation of a New Economy
Written by John Butler
Posted March 9, 2018
What Is Tokenization?
To many people, tokenization is just another confusing term associated with digital currency. It's technical, it's boring, and it's easy to dismiss.
However, today's investors would be silly to dismiss tokenization just because it's technical. Tokenization has a big role to play in our developing and future economy. In fact, even if many of the digital currencies in today's markets fail, the process of tokenization would most likely remain.
That being said, now is the time to be learning about Tokenization and the ways in which it could revolutionize many industries. We created this resource page to help in educating investors who are interested in the topic.
Over the course of this resource page, we:
- Define tokenization.
- Provide a brief breakdown of how tokenization uses blockchain technology.
- Talk about ways in which tokenization could improve existing business models.
- Provide real-world examples of how tokenization functions.
So, let's get started...
Tokenization in a Nutshell
Tokenization is the process of converting the rights associated with a physical asset into a digital asset that exists on a blockchain.
In essence, that means you'd have ownership over a physical asset by holding its digital counterpart. This has many benefits for both consumers and corporations. And it would likely increase efficiency, improve security, and make certain assets more accessible to a wider audience.
Tokenization became popular alongside Bitcoin. Financial players and technologists realized that Bitcoin and its groundbreaking technology had potential far beyond being a digital currency.
Bitcoin opened the door to tokenization by proving that a traditionally physical asset, like money, could exist independent of governance.
Bitcoin is capable of operating without a third party. And this is because of a technology called blockchain. We cover blockchain extensively in our blockchain resource page. For those who are unfamiliar with the tech, here's a brief recap...
Blockchain in 30 Seconds
A blockchain is a distributed ledger that's used to record information. Public blockchains, like the Bitcoin blockchain, have a lot of value in our global economy.
For starters, blockchains have the ability to kick the middleman to the curb. People using blockchain technology can exchange money with their peers without going through a bank.
Blockchains can also protect users by providing layers of security. Beyond encryption, the distributed nature of blockchain software makes it hard for hackers to attack the network.
That may seem confusing. But really, the only thing anyone needs to know about blockchain is that it allows individuals to exchange information freely. It also boosts efficiency, offers security, and makes asset transfers less complex.
And when you apply this technology to other industries through tokenization, it's a game changer...
How Could Tokenization Be Used?
Tokenization has a wide range of applications, ranging from finance to real estate.
For starters, let's take a look at how tokenization could revolutionize the ways in which we transfer and hold a traditionally cumbersome asset: gold.
If you want to buy gold, you typically have to go through either a local bullion dealer or an online seller. Once you've located a seller, you'll have to receive the gold and safely store it.
For many people, this is one of the major shortcomings of physical assets. Once you hold a physical asset, it's your job to protect it. You could get robbed and no one could help you. Once the physical asset is gone, you'd be out of luck.
But with tokenization, this could change. Through tokenization, the rights associated with a piece of gold would be converted to digital information that would then be stored on a blockchain.
Instead of buying physical gold, you'd receive a digital asset that recognizes your purchase. That digital record would be equipped with detailed information on where the gold has been, which would keep you safe from fraud.
The digital asset would entitle you to all the rights of the asset, without the asset ever having to actually move hands.
So, you'd have the gold and sit on it until it would be time to either sell it or move it along in your family.
When this time came, you wouldn't need to worry about actually moving physical gold from person to person. You could transfer the digital asset, and then, all the paperwork and records associated with the asset would move from one hand to another.
From the example above, you can see how blockchain could be used to improve an often cumbersome asset-movement process.
Tokenization could protect the buyer from fraud, protect the buyer from potential asset loss through theft, and ensure that assets remain attached to the buyer after death (in the case that it would be passed on).
And the above example is just the tip of the iceberg...
Other Applications of Tokenization
The above example is a fairly basic illustration of how we could use tokenization to move and safely track physical assets.
Outside of physical assets, tokenization could also be used in other industries. These include the stock market, real estate, music, medicine, and even personal identity.
In the music industry, tokenization could be used to ensure that artists are getting paid in a timely manner. It could also help smaller artists in distributing and monetizing their work.
We've already seen the early days of this kind of creative tokenization. Kodak recently established its own blockchain where artists can protect photo patents and share their work. In the case of Kodak's blockchain, KodakOne, artists can use the blockchain to monetize their work and share it without actually losing hold of the real physical asset.
Another good example is the real estate industry.
To say that modern real estate is complex would be an understatement. The amount of time, energy, and money that goes into moving titles is enormous. In fact, it's so annoying that it causes problems in the whole system.
With tokenization, a house title and all the associated legal paperwork could exist on a blockchain. Home sellers could have more power to move the lease to a new buyer. And investors could invest with more liquidity.
Once again, it's clear to see that we're talking about a game changer...
Tokenization in the Future
As we head into the future, many are excited about the doors that will be opened by tokenization.
Tokenization has the potential to revolutionize the traditional investing space. In fact, many believe that it will have more of an impact on our economy than the digital assets currently on the market.
But there are still some hurdles to face before tokenization breaks into the mainstream.
Legally, regulations will have to be put in place to ensure that things remain safe for consumers and that no one gets scammed. However, regulation in the tokenization space may come faster than regulation in the digital currency space.
Tokenization is on the verges of existing industries that have established regulatory histories. That means if these industries embrace tokenization, they may each be accountable for regulating their own spaces.
We'll continue covering tokenization and its profit potential through our free Token Authority e-letter.
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For Digital Currency, 2017 Was a Landmark Year…
The price of Bitcoin, the world's first digital asset, soared. And that turned many first-time investors into millionaires within a matter of months. Beyond Bitcoin, other digital assets also gained national attention and the support of massive corporations like Intel, Microsoft, and IBM.
But today, investors are looking at a different digital currency landscape…
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