Cryptocurrencies and blockchain technology are more and more boldly going beyond the sphere of the Internet. It can be said with a high degree of conviction that they have entered the public awareness for good, and investors perceive it as a fully-fledged branch of the capital market. Additionally, it is no secret that the world is striving for more and more digitization, and this industry may be key to this phenomenon. How? Of course, we are talking about tokenization. What would it consist of and what benefits may tokenization bring in the future? We’ll find out below.
Tokenization – what is it?
Tokenization is a form of business digitization based on blockchain technology. It consists in creating tokens and cryptocurrencies and strictly assigning them to a specific project, company or person ( personal tokens ). With the development and adaptation of blockchain technology, the tokenization potential has become enormous thanks to smart contracts and allows you to digitize all kinds of assets while reducing the costs of their transfer.
The tokens created as a result of this process are often confused with cryptocurrencies. While both of these assets are intangible, they use blockchain technology in two completely different ways. Cryptocurrencies have their own blockchain, while tokens use ready-made solutions.
We can divide tokens into three groups:
- Utility token; mainly distributed via ICO (Initial Coin Offering) and IEO (Initial Exchange Offering)
- Security tokens; distributed via STO (Security Token Offering)
- Payment tokens
Virtually every company is able to generate its own token and grant it the same rights as a typical joint-stock company. Moreover, such a process is not associated with costs, as is the case with a listing. Unfortunately, the legal status is still a development barrier to tokenization. Even in Poland, there are no regulations regulating such activities yet. However, they already function in Germany, Switzerland and Estonia.
In what aspects does tokenization have an advantage over classic investment methods? First, it allows you to eliminate many formalities , and at the same time offers access to all data related to resources , such as ownership history. Second, it allows you to completely bypass intermediaries . So thanks to it you can save both time and money compared to the competition.
Applications of tokenization
The basic and still the most common application of tokenization is a community fundraising that is used to finance a given project . Its most popular form is ICO (Initial Coin Offering), but it had many flaws in terms of security and for this reason two alternative solutions have appeared on the market. They are called STO (Security Token Offering) and IEO (Initial Exchange Offering). They place much greater emphasis on customer protection, but the procedure for carrying out one of these token issues is more complicated.
Property tokenization is also a popular application . It allows you to convert one ownership right into millions of individual tokens, corresponding to a specific part of it, expressed, for example, in square meters. Such a solution additionally enables automatic payment of rental profits to token holders in a transparent and maintenance-free manner, for example via any platform using smart contracts.
Another application is the issue of personal tokens . They are a variation of the ICO intended to represent the market valuation of the issuer in a similar way as shares determine the value of a listed company. They can accept payment for your services or sharing knowledge, experience or skills.
Other uses of tokenization are:
- Token marketing ; i.e. the use of tokens as a marketing tool
- Billing ; tokens can be used to accept payments for access to specific resources, for example in IT systems
Tokenization may also reflect the state of ownership of assets , i.e. such a token may prove that we have given shares or bonds.
The future of tokenization – an opportunity or a threat?
In connection with tokenization, both many sympathizers and skeptics of blockchain technology have quite similar interesting visions of the future. They predict that all services will have a token, they will replace money in circulation, and the world will return to the era of barter, without banks and centralization. Blockchain and cryptocurrency advocates try to present such a theory as an economic utopia, a system ideal for everyone.
They are escaping the fact that with such a multitude of coins there will be fluctuations in exchange rates and spreads, as almost everyone will try to take advantage of opportunities to get rich. Apart from the most obvious point, it would just be inconvenient and difficult to live.
Of course, this is not the only vision for the development of tokenization in the future, it is possible that it is simply exaggerated, and this phenomenon will be more and more useful each year both for financial markets and the society, and what’s more, it will not generate any additional problems, just make the world more comfortable.