Most people that doubt the power of cryptocurrencies and blockchain seem to overlook the concept of tokenization.
You see, according to experts, tokenization will be one of the main driving forces behind the cryptocurrency mass adaptation that is looming on the horizon. By that, they mean that tokenization will be the next major development for cryptocurrencies and especially for how we utilize blockchain.
And why is that important? To answer that we asked experts in the field to explain what tokenization really is.
What is Tokenization?
Tokenization is a process that involves converting physical assets and financial instruments into tokens on a blockchain. Those tokens will then represent the value of the said asset on the blockchain where it can be exchanged, traded, and stored safely.
It’s a very wide concept that can be applied to pretty much anything that has a stored value. For example, you could tokenize a car, a piece of clothing or real estate, or something non-physical such as a credit or a rental contract.
The process of tokenization has already been initiated, and there are several blockchain projects that are working on perfecting the technique, mostly for supply chain management and customer satisfaction, but more about that in a second.
What Are The Advantages of Tokenization?
Still not sure what we’re raving on about? Let’s take a look at some of the advantages that tokenization offers.
When most people talk about tokenization, they bring up the following three benefits.
– Time: Using blockchain to transfer tokens is incredibly time-efficient, and it allows users to transfer the value of an object faster than any other alternative. Blockchains are also open 24/7 meaning these tokens can be traded at any time, regardless of an exchange’’ opening hours.
– Administration: The reduction in administration work is another great benefit, and since everything is handled on the blockchain, you’ll need less space to store things as well as less staff to handle the administrative parts of transferring assets. By applying a token-based system to a supply chain, one could also limit the need to control checks, and the end-customer would never have to worry about the legitimacy of their purchased product.
Another great example is the real estate market where a lot of the work needed to re-register home ownership could be eliminated and instead be performed automatically using blockchain and smart contracts.
– Cost: Naturally, blockchains are cheap to use since you can eliminate middlemen, transportation costs, work, staff, and more.
With that said, we would also like to include safety in this list because tokenization will create a new opportunity to transfer and store large sums and high-valued assets very safely. Meanwhile, tokens can also help us protect legal contracts and documents, and, for those who are interested, they present opportunities to be completely anonymous.
In addition, tokenization will allow for fractional ownership of underlying assets. Fractional ownership can be compared with stock owners. It’s a system that allows buyers to own parts of an asset whether that’s expensive art, land, properties, or even loans.
What Are The Disadvantages of Tokenization?
The way we see it, there is on very real disadvantaged to tokenization today. You see, Bitcoin was only launched 10 years ago, and blockchains are still a rather new and small scale concept. Therefore, no one knows if there is a blockchain that can handle a colossal market like retail or real estate.
Although, since tokenization will mostly be a gradual development, today’s blockchain will hopefully have time to adapt.
As always, no one can predict what will come from this tokenization which has already planted its seeds in society. However, we can assume that tokenization will help streamline a long line of industries while hopefully having a positive impact on the market value capitalization of cryptocurrencies.