Since 2009, the blockchain network has been decentralizing the financial landscape. And by 2029, the industry is forecast to be worth $163 billion.
The continual improvement of the blockchain ecosystem has led to major milestones in tokenization. And one such worthy of awe is asset tokenization.
Wondering what asset tokenization is and its place in the financial world? We have your answers below.
What Is Asset Tokenization?
Before we get into the definition of asset tokenization, we must first understand what a token is.
A digital token is a digital record of ownership. It is like a digital title deed resident in a blockchain or distributed ledger. This provides immutable proof of one’s ownership of an asset.
Now, asset tokenization is a method of creating digital tokens of a real-life asset. These could be real estate, company shares, paintings, and other collectibles.
Simply put, asset tokenization is a process of turning assets into tokens. This tokenization of assets makes them tradable on a blockchain. And once they are up, anyone, anywhere can purchase them.
How Does Asset Tokenization Work?
The secret behind asset tokenization lies in blockchain technology.
The blockchain ecosystem has made it possible for assets to be broken into smaller units. These units represent a percentage of the assets that investors can purchase.
Think of a business owner in need of cash, maybe for payroll or to expand her operations. With all her money in the business and her credit maxed out, Antonia turns to tokenization.
She can tokenize her $500,000 shares in the business. Each token will carry real and verified data about the shares. This could be their current value, the location of the business, revenue, and the like.
And on the blockchain ecosystem, all this data will be transparent. This means anyone with an interest in the tokens can view them.
Antonia then receives 500,000 security tokens for her shares. And for safety and guarding against cyberattacks, she enlists the help of a crypto custody service.
Once an investor shows interest, Antonia can sell 50,000 of her tokens in exchange for $50,000. Depending on the terms of agreement, the investor can either be eligible for profit dividends or interest on their money if it was a loan.
The rules that govern this agreement will be outlined in what we call a smart contract.
Benefits of Asset Tokenization
Blockchain tokens provide an array of benefits for owners. And below we have outlined the top benefits you will love.
Accessibility
The investment scene has long been ruled by giant investors, but tokenization gives small to medium-sized investors a chance to join the game.
Since asset tokenization rests on blockchain technology, it speaks to the decentralization of investments. The small units can make for affordable prices, opening up the investment market.
Liquidity
Most traditional investment markets are very illiquid. This means that converting these assets into cash is very difficult.
But asset tokenization brings liquidity to the investment market. Illiquid assets like real estate property and stocks can be converted into more liquid assets through asset fractionization.
Security
The blockchain ecosystem provides security for assets. The transaction history of digital assets is recorded transparently on the blockchain. This includes token data.
All this provides security for investors, showing them exactly what they are getting into.
Tokenizing Your Assets
Asset tokenization is the best way to trade real-life assets without necessarily losing possession of the asset. This fractionization of assets opens up the investment market and makes it more accessible.
For the latest on blockchain news, follow our blog.
