Tokenization of Assets —powering a sharing economy
The word itself is self-explanatory, the idea is to create a digital twin of assets like cars, properties, bond certificates, etc. and to break up these to a number of tokens. Kind of like how the stock market functions, but instead of breaking up corporations, we are dealing with physical assets. A person who owns one of these tokens, in turn, becomes the owner of a part of the physical asset.
The concept of asset tokenization is particularly important in today’s sharing economy — we rent out homes on Airbnb and can earn money using our cars on Uber. The potential to own a part of an asset like this opens up large investment oppurtunities.
The idea of breaking up entities into smaller parts has been around for a long time, but blockchain makes the process very easy to set up and track and is completely digital. Tokenization can have great effects on trading and investment, promising transparency, liquidity, data integrity, and a larger market for investment. By tokenizing assets, you can start trading them in a cryptocurrency like fashion and managing their value exchange under a smart contract written on blockchain.
Let’s consider an example in real estate. One of your properties has a value of $100,000. With asset tokenization, you can represent its value in terms of tokens. Let’s say that 1 token = $100. That means each token represents 0.1% ownership of your asset. This opens up the potential for more investors that would otherwise not be able to invest and could lead to a faster sale, not to mention the ease of payment and authenticity that blockchain provides. This is especially true for high-value transactions and corporate assets.
Do we really need blockchain for asset tokenization?
Tokenization exists right now, albeit in different forms but even if we wanted to make the process digital, how exactly does the blockchain technology provide a specific advantage in this case.
Immutable — The central theme of blockchain is that it is really good at creating an immutable and decentralized database. Trust is built into the system and provides a perfect platform to execute high-value transactions.
Accessible and Redundant — Using blockchain guarantees that data will be stored at multiple locations. This ensures that data remains accessible at all times.
Transparent-All the transactions are open to all the participants, the degree of openness may vary based on the implementation, but we can, at the very minimum ensure that all the stakeholders are aware of all the transactions happening related to their asset.
Right now, high-value investments like real estate, art, and antique pieces are reserved for the few. With a secure asset tokenization mechanism built on blockchain, these investments become more accessible and provide multiple benefits like :
Avoid middlemen: the owner can directly list the asset on a digital marketplace and the buyers can purchase these tokens.
Accessibility: Own a piece of asset anywhere in the world, always accessible right in your mobile wallet. Subject to local laws and regulations, this could mean you can own properties in many countries without even setting foot in the country.
Liquidity: The tokenization model provides better liquidity, you can choose to sell a part of your investment and the selling process can happen in a matter of minutes.
This could particularly benefit smaller countries as this brings the possibility of a lot more investment. Countries like Dubai and Malta are leading in the space of blockchain adoption, although they have adopted blockchain in land ownership, the vision of tokenization is still far away.
Needless to say, the concept of tokenization cannot work if there is no legal and regulatory backing. But the outlook is pretty good since we are building blockchain powered governments, land ownership platforms, and banks, I feel its only natural we progress towards asset tokenization.
Let’s tokenize everything!
Maybe not :)
The concept of tokenization is particularly important in sharing economy, a group of friends could collectively own a house and make rental money by listing it on Airbnb, which none of them would be able to do individually.
This gets more interesting in the future when we have autonomous cars, a car could be jointly owned by a group of people, theoretically, the autonomous car could pick up people on any ridesharing platform and generate income (getting paid in crypto).
Legal and regulatory hurdles exist in the proper implementation of this technology and it may never take off without proper support from the government or regulatory institutions. But tokenization does provide a lot of opportunity for investors and asset managers, particularly large corporations looking to invest outside their border.
I work as a blockchain engineer and researcher. Reach out to me at stanlyjohnson.me