What is tokenization?

Tokenization as a concept has existed in the financial and tech industries for a long time. It was used as a way to replace sensitive data (like credit card numbers) with a “token” to protect it from fraud. However, with crypto, the concept of tokenization takes a leap further, where it’s not just about data security, but about ownership, rights, and access through the blockchain.

Tokenization is the process of taking something valuable, like a skyscraper or a piece of art, and turning it into a token on the blockchain. This token works as a “digital certificate” of ownership. Tokenizing an asset means that it is divided into smaller portions (tokens), so that many people can own pieces of the asset at once, and can all benefit if its value rises.

Let’s take the skyscraper from above as an example. Owning a skyscraper might be impossible for most people. But with tokenization, a skyscraper can be digitally divided into hundreds or even thousands of tokens, each token representing a small share of ownership. This allows many people to “own” pieces of the same asset (the skyscraper).

There are a lot of benefits to Tokenization, let’s explore a few:

• Tokenization makes hard-to-trade assets, like real estate or fine art, more liquid. Liquidity in this case means the ability to buy or sell something quickly without losing much value by allowing fractional ownership (owning parts of an asset).

• Tokenization removes the restriction of banking or operational hours, as it allows trading to happen at any time.

• Tokenization creates new investment opportunities, since it breaks down assets into multiple tokens. This way, a lot more people can collectively own a single asset in a more affordable, faster, and transparent way. 

As mentioned earlier, Tokenization is the process of transferring real world or digital assets into “tokens” that can be traded online. There are two types of these tokens: fungible and non-fungible. Fungible tokens are identical and equivalent in value with other units of the same type. For example, 1 BTC is equal in value to any other 1 BTC, and the value of $10 is the same as any other $10 bill.

But non-fungible tokens (commonly known as NFTs) are unique tokens that can’t be swapped one for one. For example, digital art and collectibles are two of the most well known NFTs. When a piece of art or a luxury item is tokenized, it means that the token now represents the item digitally, confirms its authenticity, and works as proof of who owns it, all through the blockchain. You can read more about NFTs here.

Tokenization transforms the way we think about ownership and investment by turning assets into digital tokens on the blockchain. The transparent nature of the blockchain makes it easier to verify ownership, and ensures the security of trading these tokens. Therefore, tokenization opens up investment opportunities and makes them accessible to everyone.