Tokenization allows us to identify the transformation and representation of a tangible asset or object as a unique data expression within a blockchain.
Tokenization on the Blockchain means recording the properties of that object into a distributed ledger that makes it unique. This way, we can have a perfect impression of the physical or digital asset. Through it, we can operate and understand it as a unique, unrepeatable object with its characteristics and history without these data being able to be modified by external or unauthorized agents.
In addition to being able to apply to almost anything, blockchain tokenization transforms the way we can transact and manage all types of assets, from houses, cars, airplanes, bonds, company shares, artwork, and collectibles. Arguably, the limit of what we can tokenize is in our imagination.
The concept of tokenization in the digital world is nothing new. People inadvertently use Auth tokens when buying things with commercial banks’ credit/debit cards. While it is a valuable and powerful technology, Blockchain takes this concept to a new level.
What is blockchain tokenization?
You can observe the use of tokenization in the Blockchain to create cryptocurrencies. Each native cryptocurrency, such as Bitcoin (BTC) or Ethereum (ETH), is a unique item represented by a digital token on the Blockchain. However, Blockchain’s potential advanced rapidly, creating “native tokens,” or cryptocurrencies, to generate additional tokens with unique properties and accounting.
Bitcoin is the first released blockchain technology to achieve both. It created the first cryptocurrency (BTC is Bitcoin’s native token), and later, developers implemented Colored Coins. The latter were fractions of BTC (satoshis) associated with metadata, making them unique and particular scripts for their creation. Perhaps the most relevant Bitcoin token in the world is USDT from Tether, the stablecoin anchored to the dollar. USDT or Tether, the most used stablecoin, started as an example of the tokenization capabilities of Blockchain.
With the advent of Ethereum, that potential increased. Second-generation (Ethereum) and third-generation cryptocurrencies (Cardano, Solana, Polkadot/Kusama) have enormous tokenization capabilities. All this underlines the great potential of tokenization in the world.
The Impact of blockchain tokenization
Blockchain technology is still evolving and improving. So much so that blockchain tokenization is practically everywhere. Want to start a funding round for your company? Start a fully regulated Decentralized Autonomous Organization (DAO), ICO, IEO, or equity token issuance. Want to create secure and non-manipulable merchandise tracking software? Use the power of blockchain tokenization, and you can achieve it. Intellectual Property (IP) and copyright management will also benefit from this technology. Tokenization of all these mechanisms can open the door to transforming all these industries.
Despite many people seeing these technologies as “science fiction,” reality reveals that technological advancements force existing buildings to change. We saw it with Blockbuster when its model collapsed in the face of revolutionary ideas like Napster, Netflix, or Apple’s iPod/iTunes. All those technological advances destroyed a company with 15 brilliant years of development, which did not know how to adapt to a new reality.
The same is happening with Blockchain and tokenization. Why complicate yourself looking for funding from banks, VCs, or other financial organizations, that, in exchange for financial help, end up imposing rules that restrict the decision-making power of your company? Tokenization and Decentralized Finance (DeFi) allow you to create your structure to achieve such funding while maintaining freedom. Banks have begun to be displaced by exchanges and decentralized protocols, which mobilized hundreds of billions daily. Blockchain crowdfunding is an example of how tokenization is transforming the world. This new way of doing things affects almost every economic sector.
Future of tokenization in the digital world
Tokenization has an incredible application in The Internet of Things (IoT). Blockchain and Smart Contracts can automate and secure the operation of many devices that help move products worldwide. Devices with precise functions and goals in different spaces can be monitored and verified by third parties publicly or privately. Similarly, in Artificial Intelligence or Big Data, tokenization helps keep data secure through differential privacy, obfuscation, and other methods. Still, you can also verify all parties at any time. Cases like Ocean Protocol or Microsoft Decentralized IA are a case in point.
Tokenization and Research can go hand in hand if the needs and objectives are precise. Tokenization has much to offer, and we are still learning its possibilities.