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Web3 is growing day by day, and with new innovations being introduced to the blockchain, these advancements are speeding up Web3 development. This makes it possible for new functionalities to be introduced to the world of blockchain and gradually the real world is starting to mix with the digital space.
One of the biggest spotlights amongst these innovations is asset tokenization. This makes it possible to bring real-world assets that total trillions of dollars into the blockchain. But what exactly is asset tokenization, what possibilities does it bring, and what should we expect from it? Let’s take a look.
Asset tokenization is the process of taking any asset and binding the ownership of this asset to digital tokens that are stored on the blockchain. When this happens, these tokens act as certificates of ownership for these assets and they can represent practically anything. We can tokenize both physical and digital assets, be it fungible or non-fungible. Since these tokens are stored on the blockchain, owners can easily maintain the ownership rights of the given asset, as long as they hold these tokens in their crypto wallets.
Despite this being somewhat of a new concept, some major companies have started to take a closer look at this new technology. According to research conducted by world-leading companies, asset tokenization has the potential to disrupt many industries. Some companies have even started tokenizing some of their assets and asset tokenization is slowly becoming one of the most popular blockchain use cases.
Asset tokenization is a simple process that follows the basics of Web3 technologies. This is the same process as creating an NFT and is achieved using smart contracts. Developers create smart contracts that bind certain coins with assets and then these assets are stored on a highly secured blockchain. There are numerous different types of asset tokenization, and let’s take a look atsome of those.
First, we have real-world asset tokenization. This process simply creates a digital asset that is tied to the real-world one and acts as proof of ownership. These assets can be anything, from fiat and real estate to intellectual properties and art. While these assets have proof of ownership in the real world, they can not be stored and traded within the world of blockchain. Tokenization gives us this possibility and if an asset is tokenized, it can be traded on the blockchain, where ownership rights are secured and protected.
We also have the ability to tokenize digital assets, which has become a crucial part of the Web3 and blockchain infrastructure. Since digital assets are purely stored online, having proof of ownership over the given asset is hard, unlike real-world assets. Tokenization removes this problem, and now digital assets can have concrete proof of ownership and people holding them can be sure that no one will be able to steal this ownership from them.
Looking at this simply, asset tokenization brings the benefit of offering decentralized and secured alternatives to traditional assets. This makes it possible for assets to gain value since they are introduced to the world of blockchain and they gain additional functionality on top of what they already have.
But other than this, asset tokenization can also improve other aspects of these assets and bring many more benefits. These tokenized assets can increase market liquidity and make these assets more accessible to wider communities. It also increases the security of ownership and in general, brings many new possibilities to the world of blockchain. Let’s take a look at some of these benefits more closely.
As we know, liquidity refers to how fast you can make transactions and trade with certain assets. While looking at Forex and similar markets, there is good liquidity, and transactions can be done really fast. But there are other real-world assets that don’t benefit from this liquidity and they are commonly associated with high costs and lengthy transactions and settlement times. But with asset tokenization, everything will move to the blockchain, where these transactions and settlements can be done really fast, subsequently increasing the liquidity of these assets.
This tokenization can also help increase the liquidity of illiquid assets. When we tokenize the asset, we can assign as many tokens as we want to this asset. What this means is that one token will give a person a percentage of the ownership and this percentage will depend on the number of tokens issued. This gives us the possibility to create fractional assets, where multiple people can have ownership of the asset, and their share will depend on the number of tokens they hold. For example, let’s say that we tokenized a painting and assigned 100 tokens to it. Now we have 10 people with 10 tokens each, meaning that each person will have 10% ownership of this asset, as they will be holding the 10% of all coins allocated to the painting. This makes buying and selling of these assets much easier, as a person can simply purchase partial ownership of the asset in a fast and simple manner.
Asset tokenization can also help to increase the accessibility of these assets. There are numerous assets that have very high values and while people who have money to spend can easily buy into these assets, regular people are locked out of this market. Asset tokenization removes this barrier to entry and regular investors can easily invest into high price assets.
We looked at the example of tokenizing a painting and allocating 100 tokens to it. Let’s say that this painting is valued at $1 million, this means that each token is valued at $10,000. If we think that the value of this painting is going to go up, but we don’t have $1 million to buy it, we can simply buy one token for $10,000. Now let’s say that the value of this painting actually went up, and now it’s valued at $1.5 million. Now the token we bought for $10,000 is valued at $15,000 and we can sell it for $5,000 profit. As you can see, with this asset tokenization, regular investors and traders can easily invest in very expensive assets and reap benefits, even without buying the asset as a whole.
Transparency has become one of the most important factors in the financial world. In the past, when transparency was not so hotly discussed, many people took advantage of this and hid certain bits of information or changed them around in order to benefit themselves. This problem is still around, and when we are buying something, gathering all of the necessary information has become very troublesome. This is especially true for foreign assets, or assets that have been around for a long time, and the information about them is not properly recorded.
Tokenization removes this problem as the blockchain has the ability to record all the information about each asset, and this information is then kept forever. When a blockchain records something, it can not be removed unless we rewrite the whole blockchain. With this, tokenized assets are guaranteed to have full transparency and you can learn everything you need to know about the given asset in a short amount of time.
As we move forward with Web3 and blockchain, more and more new possibilities and opportunities are going to arise. Looking at the current financial systems and the way they operate, these developments are destined to improve many flaws and problems that we currently face. Asset tokenization is probably one of the most important innovations that has been introduced in the past few years, which is destined to change the way we interact with both real world and digital assets.
While it’s still early days for asset tokenization and many industries and companies are looking at this with skepticism, it’s hard to deny that possibilities are there. When mentioning asset tokenization, most people think of NFTs, which have gained some negative attention, due to the most expensive ones being simple digital arts. But tokenized assets are not just simple pictures that are stored on the blockchain and they are way more than that. Asset tokenization gives us the opportunity to introduce assets to the blockchain, which is a highly secure and transparent space. Because of this, don’t be surprised if you see more major companies tokenizing more and more of their assets in the near future.
NFTs represent irreplaceable digital assets, and coming from their name, they are non-fungible. When creating NFTs, the goal is different as these are digital assets that are represented as tokens. Asset tokenization has different goals and achieves different results. Asset tokenization helps to protect sensitive information and data and guarantees that asset ownership is kept and maintained. Tokenized assets can not be decoded, meaning that data is protected and no outside party can gain access to it. Another difference between these two are the reasons behind their creation. Asset tokenization helps to bring traditional assets into the world of blockchain, while NFTs make it easier to move assets around, but only non-fungible ones.
Asset tokenization brings many different benefits and gives many new opportunities. First and most importantly, asset tokenization guarantees the safety of the assets. Since these tokenized assets are stored on the blockchain, it’s impossible to tamper with them. Tokenized assets also bring liquidity and make the market more accessible to the general public. Since one asset can have multiple tokens associated with them, people can own parts of the asset, which makes trading with these assets much easier. Lastly, asset tokenization brings transparency and makes it much easier to learn more about each asset. Since blockchain keeps all of the data and changing or removing this data is impossible, it becomes much easier to learn certain things about these assets.