Understand “tokenization” in just 3 minutes

After the digitization of information thanks to the emergence of the consumer Internet in the 90s, the digitization of assets and all types of property that surrounds us is a new revolution. Paper documents, works of art, financial assets, real estate… all of this could take the form of “tokenization”.

But what should we really understand by this term? How does it work? What does this actually do? What are the advantages ? We will explain everything to you.

What is tokenization?

The term tokenization can be defined as a means of securing data using the blockchain. The idea is therefore toencapsulate real assets, tangible material or not in a digital world.

The tokenization of an asset and its rights ensures its security, simplifies its management, and optimizes its instantaneous exchange.

If tokenization is the process, the token is the end result. It has several characteristics:

  • Its creator can customize it to your liking (copyright, right of use, right of ownership, right to vote, etc.).
  • He is particularly liquidwhich facilitates its sale or purchase on an exchange platform.
  • There is no need for a trusted third party or the intervention of an authority to operate or validate its transfer.
  • Anyone can create their token.

How does tokenization work?

The operation of tokenization can vary since it is generally necessary to distinguish between three types of token:

  • One who provides a enhanced security.
  • The token that is above all a means of payment. Like any cryptocurrency, a token facilitates exchanges and transactions.
  • The one who has a utility function. In this case, it will allow, for example, a company to raise funds by issuing these “utility tokens” and thus obtain financing in return for access to the product/service when it is implemented.

In addition, it should be understood that there are two main types of assets that are more easily “tokenizable” than others:

  • The so-called “fungible” assets, because they can be subdivided into a multitude of units. In addition, they can generally be interchangeable, which facilitates the fluidity of exchanges.
  • The Intangible assets. We are talking here about patents or copyrights, for example. Tokenization finally makes it possible to offer a corporeal envelope to these assets devoid of physical existence.

Read also Understand “smart contracts” in just 3 minutes

What is the use of tokenizing?

This form of secure envelope makes it possible to associate a material property or not with rights. It is entirely possible, for example, for a company to encapsulate both a fraction of its capital and the voting rights in the AGM attached to it in the form of a token.

Let’s take another example with a diamond: if a diamond wholesaler owns a stone worth 20 million euros. With the tokenization of the latter, it will be possible to hold a fractional ownership of this asset for a few thousand euros. Everything will be traced and secured on the blockchain. The owner of this tiny part of diamond will be able to exchange it at will thereafter.

Benefits of tokenization

Tokenization reveals several advantages to its user. We can mention in particular:

  • The assurance of simplifying all types of administrative procedures and make the purchase/resale more fluid since it will depend exclusively on supply and demand on the market.
  • For individuals and entrepreneurs alike, tokenization may eventually be an alternative solution to traditional financing or even crowdfunding.
  • A better liquidity and transparency.

Conclusion: An infinite digitalization potential

Tokenization is a revolution in the making. In the near future, it will be possible to tokenize any type of good or asset imaginable. This may concern stock market values ​​as well as shares of real estate or works of art in the form of NFTs.

It is actually about digitize our current world. A token can take several forms with many applications: building customer loyalty, rewarding employees, pooling services, transferring a company, authenticating acts, etc.

💎 Receive your Free Crypto Watch

The “Quickly Done, Well Done” crypto watch: Every Friday at 8 p.m. sharp, receive our free crypto watch in your email inbox. 100% added value, 0% spam!

🔥 Receive as a Bonus your Free Guide “Find the future Nuggets”: Learn how to analyze cryptos like a pro, avoiding Red Flags and Scams, to start or continue your Adventure in the world of cryptocurrency.

Leave a Comment