Enterprise Blockchain tokenization — what is it and how it benefits?
Introduction
2009 was the year when the world first heard about the term Bitcoin. More than a decade later as the whole world watches the rise of cryptocurrency with governments of various countries like China and India contemplating the use of cryptocurrencies, the next leg of growth is up for the taking in the technology driving Bitcoin, Blockchain.
Enterprise tokenization is the hot word in technology circles today as it promises to transform the way we will own and trade real things in the future. In this blog, we shall discuss what tokenization is, its benefits and take a peep into the exciting ways in which blockchain technology can transform our lives.
What is blockchain tokenization?
Tokenization is a technology that assigns digital tokens to tangible as well as intangible assets. The beauty of tokenization lies in the fact that once the product owners have tokenized the assets, they have made it possible to store and trade these assets fractionally or completely and even trade them with others.
Another term that is associated with asset tokenization is STO (security token offering). Blockchain is the technology that makes it possible to create and store tokens. Once the tokens are created, the asset owners then need to choose a unique STO platform that will enable the owner to digitize the assets and turn them into the required tokens. Once this process is complete, the owners then can launch their own STO campaign and sell these tokens to anyone interested in investing in the asset holder’s business.
Let’s take a simple example to understand this. Suppose a person has a property worth $500, 000 in New York, and the person needs some money, say $50,000. Instead of going to the bank and mortgaging the property, the person can divide the ownership of this property into 500,000 tokens with each token representing a tiny percentage of the total value of the product.
People interested in investing some money in a New York property would buy the token and attain ownership of a tiny proportion of this property. The benefit of blockchain asset tokenization is that the distributed ledger technologies are immutable, and hence nobody can erase the ownership of the investor who has bought the tokens of this property, providing protection and peace of mind to the buyers.
According to an estimate by Pluoneto, in Europe alone, the size of the tokenized asset market is projected to be €1.4 trillion by 2024.
Benefits of asset tokenization
Asset tokenization is one of the leading blockchain trends and it has many benefits.
Greater accessibility and liquidity of assets
Blockchain technology provides a decentralized system that allows anyone in the world to tokenize their assets. As the system is decentralized without any authority to control, it accords much greater accessibility than traditional systems. With a blockchain-based system, the list of assets can be comprehensive and can include even illiquid assets like real estate, artworks, antiques, and even automobiles. Thus Asset tokenization provides substantial liquidity.
Transparency
Blockchain is a technology that, by default, provides a high level of transparency. This is because all the transactions taking place on the Blockchain are available to all of its participants. This is an essential feature of blockchain technology because the users can trace the entire history of all the actions with a particular asset, verify its origin and see how the ownership change has taken place.
Immutability
All data stored on a blockchain is immutable. The immutability of the records creates confidence amongst the users. They can rest assured that the transaction records are accurate as nobody can change them once recorded onto the Blockchain.
Fractional ownership
Blockchain asset tokenization allows the owner of the asset to split the asset into as many parts as needed. This ability to split assets attracts many investors to the asset and provides a greater amount of asset liquidity.
The owner of the asset can split it into as many parts as they need. The ability to split assets also grants the ability to own them partially. This attracts a large number of investors and provides, again, greater asset liquidity.
Legal framework
Professional tokenized asset platforms come under the purview of legal systems all over the world. This avoids any glitches in the future and provides confidence to the investors to conduct business seamlessly.
Cost savings
Asset tokenization is a pretty secure and straightforward process that allows the parties involved in the transaction to conduct the transactions without involving any other third party, Which reduces the costs that are usually spent on third-party services.
Asset tokenization also provides a time benefit because usually, it may take hours or even days to transfer assets and conduct related transactions. But, with asset tokenization, the process can now be completed within a few seconds.
Scalability and efficiency
As tokenized platforms allow direct peer-to-peer transactions, there is no involvement from third parties. This feature of tokenization of assets makes the process highly scalable and customized.
Risks and challenges associated with asset tokenization
Blockchain asset tokenization still has a long way to go before the world adopts it as a way of doing business. There are many risks and challenges associated with using blockchain technology for the tokenization of various forms of assets, let’s consider a few of them.
Regulatory uncertainty issues
Most of the issues are related to regulations in various nations and technology constraints. Countries haven’t yet developed standard regulations to regulate borderless technology like Blockchain. This is a situation faced by any new technology initially and eventually, politicians, regulators, and technocrats will join forces to define a proper legal framework and common regulations among jurisdictions for asset tokenization.
Not immune from attacks
Although Blockchain is also vulnerable to hackers, there are many common misconceptions regarding blockchain security as many people think it is not a very safe technology. But the good news is that the number of severe security attacks on blockchain systems is on a downward trend. There was an 8% decrease in the number of attacks on blockchain systems based on recent reports. Although the drop is not very significant, it reflects the efforts made by the top blockchain developers to protect the end-users from the loss of money, assets, and information. Maybe a combination of IoT, AI, and Blockchain can help developers achieve the desired level of security in blockchain applications.
We expect that these obstacles would be overcome with concerted efforts from the best blockchain developers and other stakeholders in due course.
Real-world applications of asset tokenization by industry
Despite its limitations, the asset tokenization of blockchain technology has caught the imagination of enterprising entrepreneurs all over the globe. Tokenization has already entered many industries. Let’s explore some exciting real-world asset tokenization examples.
Tokenization in real estate industry
Blockchain technology eliminates multiple intermediaries and makes it easier and economical for buyers and sellers of real estate to interact with each other. Asset tokenization makes fractional ownership of a real estate property possible. For example, two people can buy a summer house and agree on the times and conditions for using the house. This way, they can halve the cost of a property that they will not use for most of the year.
And now, let’s look closer at facts and examples.
A consortium of Gulf investors acquired real estate assets worth over $1billion through Liquefy, which specializes in asset tokenization of real estate assets.
The AnnA villa near Paris became the first real estate deal in Europe’s history sold through a blockchain transaction. The villa’s value is estimated to be €6.5 million, and it was sold in 3 stages. First, the ownership was transferred to a company SAPED AnnA which was a joint-stock company. In the second stage, the property was divided into 10 Ethereum tokens. In the final stage, the tokens were again split into 100,000 units, each worth €6.50.
The success of these early transactions shows that real estate tokenization is a successfully working mechanism. A significant benefit of real estate tokenization is that it opens the market to many investors, hence increasing the liquidity of the asset.
Tokenization in finance
Many financial market participants are now gradually introducing Blockchain into their work. The potential of cryptocurrency in banking and many next-gen banks are introducing blockchain technology into their systems. Asset tokenization is a beautiful opportunity for investment banks, as they can provide their clients with new avenues for investment.
Equity tokens and crowdfunding
The European Securities and Market Authority (ESMA) has concluded that equity tokens can be considered valid financial instruments and treated as securities. The investment model works because all the investors have free access to STOs and there are crowdfunding platforms that comply with all the KYC/AML requirements and serve the investor interests.
Here are a few examples of such crowdfunding platforms;
- KickICO
KickICO is an online reward and donation crypto crowdfunding platform built on Ethereum smart contracts. The solution allows the investors to buy tokens in innovative start-up projects.
- TaoDust
TaoDust is an equity crowdfunding platform that allows investors to invest in BTC, USD, Euro, and ETH. The major benefit of TaoDust is that it provides low transaction fees for such investments.
Venture capital
VALOR is a platform, that allows VCs and hedge funds to invest in tokenized assets. The platform also allows users to exchange cryptocurrencies and manage their digital asset portfolios.
Tokenized stocks
Bittrex Global is a digital asset exchange that offers tokenized stocks. Using this exchange, investors can purchase tokens of stocks like Tesla, Google, and Netflix. Tokenized stocks have a distinct benefit over regular stocks; they can be traded 24x7 and not just during the stock exchange timings.
Tokenization of precious metals and natural resources
Gold tokenization
Gold and silver are two of the most popular investment assets. The tokenized gold removes unnecessary documentation and red tape and the participation of unreliable third parties. Apart from that, trading tokenized gold is easy, like trading cryptocurrencies. There are many crypto coins whose value is in line with the prices of actual physical gold. DGX, PMGT, XAUt, and Meld Gold are examples of such gold-backed crypto coins.
Aurica Metales, a Chilean company, became the first gold broker in Latin America that offers digital tokens backed by real gold. Each AurusGOLD token can be exchanged for 1 gram of 99.99% purity gold from LBMA accredited refineries.
Silver tokenization
Silver tokenization is similar to gold tokenization, but as silver is more volatile, the traders can buy silver coins and earn off their volatility. Some of the most popular silver-backed tokens are SilverCoin(SVC), Silverlink(LKNS), and SilverTokens(SLVT).
Tokenization in Cargo
Issuing proof of ownership is an important component in the logistics industry, the bill of lading is a prime example of this.
In case the bill of lading is lost or misplaced, then it can cause numerous issues like delay in delivery and trouble in reclaiming goods.
CargoX is an innovative company that has come up with the solution of tokenization to avoid the issues that are caused by the traditional methods that use the Bill of Lading (B/L). They have built an open system based on Ethereum known as Smart B/L. At the origin point, the carrier will create a Smart B/L and send it to the exporter. Once the importer transfers money to the exporter, the exporter will then transfer the ownership of the Smart B/L token to the importer. At the receiving end, the importer can claim ownership of the goods by presenting the Smart B/L token to the carrier.
Tokenization of artworks
Blockchain has the potential to make the artwork more accessible not only to art lovers but to the artists themselves as the artists can now tokenize their work and sell them all across the world without the need of intermediaries like art galleries.
Here are some asset tokenization platforms which are credited to fine art;
Monart
Monart is an Innovative international art community and marketplace that invites investors to buy tokens in great artwork collections and capitalize on the growth of the fine art market.
The platform offers its own Ethereum based token called MART.
Maecenas
Maecenas is an art investment platform built using blockchain that allows artists to tokenize their artworks. Maecenas also allows art investors to acquire tokens in artworks. An Andy Warhol painting named “14 Small Electric Chairs” was successfully auctioned in a first-ever multi-million dollar blockchain-based artwork auction.
Asset tokenization has the potential of unleashing the power of Blockchain beyond cryptocurrencies.
Reducing environmental impact
Environmental pollution is one of the most critical challenges that the world faces today and blockchain technology is helping humanity fight this challenge.
Moss Earth is a Brazilian environmental organization that started tokenizing carbon credits by introducing its own Mco2 tokens and putting them up for sale.
The asset tokenization project of Moss Earth has contributed to offset in around 2 million tones of greenhouse gases. Moss Earth has bought and sold over 900,000 tons of CO2 in just the first 8 months of launching the Mco2 tokens. The money earned from this campaign has helped pay rewards for conserving nearly 1 million hectares of forest.
Sports
The sports industry is one of the worst affected industries due to the pandemic. Once the pandemic subsides, experts expect that everyone, including sports teams and fans, will start getting back to everyday life and the market size for the sports industry may start to grow rapidly. Many sports companies are already exploring asset tokenization opportunities.
In 2020, basketball star Spencer Dinwiddie tokenized a part of his 34 million contracts with the American professional basketball team Brooklyn nets. Tokenization was done through the dream fan shares platform which is an Ethereum-based asset tokenization platform.
One of the world’s most famous football clubs, Barcelona, had invited its fans to buy 600,000 tokens based on a special enterprise blockchain technology which included creating a unique Barcelona cryptocurrency, the Barça Fan Tokens ($BAR). Each token would be worth €2 each. The owners of these tokens would have exclusive voting rights in club polls and a chance to meet their favorite players. The club earned €1.2 million in less than two hours and increased fan engagement by selling these tokens.
Also Read: Top 5 sectors that will be benefited by Blockchain
Conclusion
Asset tokenization has opened up floodgates of possibilities. The ease, speed, security, and ability to tokenize intangible assets like Real estate and artworks have excited investors worldwide. Although the technology still faces challenges like regulatory approvals and a few security issues, the possibilities of the technology are too big to ignore due to these challenges. One can hire the services of top blockchain app developers to build a robust asset tokenization platform.
