A quick and simple answer to ‘What is Tokenization’, in plain English.
Tokenization of assets on blockchain, in its simple form, is the method of converting rights to an asset into a digital token.
An example:
Let’s say that you own an apartment worth $500,000.
In order to buy a new motorbike, you would need $20,000 you do not have.
Potentially you could convert (tokenized) $20,000 of your home worth into a token you will call ‘MotorToken’;
You will then determine that each of your MotorToken will be valued at $1 per MotorToken (even though it’s arbitrary);
Your next step would be to issue your MotorCoin on a smart contact platform (Ethereum i.e);
And then users will be able to buy and sell it on a cryptocurrency exchange (Coinbase i.e.).
Each percentage of coins represents the holdings. So in this example, each MotoCoins equals 0.00005% of your $20,000 underlying offer.
So, if to summarize it, we took a ‘real asset’ we own; convert it into tradeable coin and offered it for the public to trade on.
This asset is now live on the blockchain; Since blockchain is a public ledger we trust that no one will be able to erase or manipulate with it.
Yes, there are problems:
- Regulation – Who will enforce the rights of your asset that you just tokenized? Let’s say that someone did buy all your tokens, the new token owners, now just have tokens and not the enforced rights on your property.
- New economic model – Will tokenization stand along with the ‘classic’ monetary system? Can you imagine a parallel system that can be established along with the financial program we know and trust?
To conclude all, we really hope to see the tokenization method takes place.
We believe it has good uses for the online industry (we will follow up with more articles about it in this section) and many more.