The Case of Blockchain Tokenization and What Lies Ahead
Blockchain is primarily a distributed ledger designed to foster transparency and immutability of information and, most commonly, transactions. The idea of blockchain was initially instituted in 2009, with the most successful crypto asset, bitcoin. Since then, there have been many other crypto introductions, including the launch of the second-best performing blockchain, Ethereum.
Ethereum introduced the concept of smart contracts, which paved the way for the speedy introduction of crypto tokens. Tokens are primarily a digital representation of another asset, be it real-world or digital. Tokenization, therefore, is the creation of digital representations of other assets.
For instance, a startup may decide to launch a token representing equity for another company or art piece. What industries are the biggest gainers of tokenization?
Tokenization’s Biggest Gainers
There are currently some industries that are already benefiting from tokenization. Among these industries include;
- The art industry – This is one of the sectors set to benefit highly from asset tokenization. Due to the rarity and expense of art pieces, tokenization will be a better way to ensure people in different countries own art pieces.
- The real estate industry – Recently, several fintech startups have expressed interest in tokenizing the real estate industry.
- The financial markets – Financial markets are also another industry set to benefit highly from tokenization. Assets like equities, bonds, forex, etc., will be highly accessible to all investors.
Benefits of Blockchain Tokenization
The most important benefit of blockchain tokenization of real-world assets is liquidity enhancement. For instance, liquidity is lacking in the real estate industry due to lengthy procedures.
Another industry with lacking liquidity is the art industry, with some of even the smallest pieces of art costing fortunes to obtain.
However, with the tokenization in place, the assets’ liquidity will no longer be a problem. An investor will own a fraction of the real estate and will quickly sell the tokens anytime.
Foster Cheap and Faster Transactions
Any transaction in the real estate world often has to pass through mid-parties like financial institutions and legal advisors. The processes are often time-consuming and expensive.
There is no middle-party in every transaction in tokenization, meaning the transacting parties only pay a small fee for leveraging the smart contracts.
Moreover, the regulations are less, meaning in a matter of hours, an investor can complete a purchase of a fraction of real estate.
Reduced Entry Barriers
The financial world has extreme barriers restricting small scale investors from benefiting from any opportunities. For instance, some platforms set the minimum number of equities an individual needs to purchase, increasing the average investor’s entry barriers.
However, tokenization, when adopted widely, will be the solution to such issues.
An investor will freely invest in the asset of their choice and the value of their choice. Everyone enjoys rewards based on their share.
Tokenization Leads to Increased Transparency
The transparency of tokenized assets is owing to the immutability and transparency of the blockchain. These technologies are resistant to fraud because of their transparency.
Additionally, a token security token holder can get tokens with pre-defined rights and responsibilities. Such attributes make tokenization have unparalleled transparency.
The Future of Tokenization
Because of some success noted in the blockchain space, there is a high possibility that the future of tokenization is bright. However, there is still a lot to be done by financial institutions to make tokenization a success.
For instance, like in every crypto startup, the formulation of business models leads to success. Financial institutions, including banks, forex markets, and many others, should set up the best models to accelerate tokenization.
Other things that are vital to put into consideration include;
- Security, especially cybersecurity from hackers
- Compliance mechanisms to regulatory authorities
- Jurisdictions between different boundaries
Although the future seems bright for tokenization, the world is still a long way towards proper tokenization. Some people currently own large shares of wealth in society; thus, it will be hard to level the field.
Moreover, although highly promising, crypto-assets like BTC and ETH are still clouded with tonnes of problems. For instance, there is a lacking regulation in the crypto industry, increased security threats, and scalability issues. Almost a dozen startups enter the crypto world every other month, but some end up dying because of the increasing insecurity.
Solving the problems clouding individual crypto assets could be the catalyst needed for successful tokenization.
Since the launch of blockchains and the successful launch of over 10 thousand altcoins, it’s fair to say that the crypto world is proving to be an excellent financial revolution tool. Some platforms have been releasing tokens as a representation of a particular good or service. The art, real estate, and financial markets industries will be among the beneficiaries of this blockchain disruption.
There are many benefits to tokenization, including liquidity, transaction speed, efficiency, and increased transparency.
To complete any successful tokenization and global adoption, governments, financial institutions, and other industries should agree to play their migration role. Governments may decide to set guidelines, startups and financial institutions should adhere to the guides. Only through full participation of all the relevant industries globally will tokenization reach greatness.