Tokenization is the process of converting rights to an asset, from stocks to real estate, into a digital token on a blockchain network. Tokenization is one of the hottest topics in the cryptocurrency space today. It’s also one of the most misunderstood and misused terms in the industry. In this article, we’ll help you define tokenization and explain how it works—but first we need to take a look at its history.
What is Tokenization?
Tokenization is the process of converting rights to an asset into a digital token. It can be used to represent any asset, but it’s most commonly used for financial assets.
Tokenization is a way to make assets more liquid and secure by separating them from their physical form and giving them new life as digital objects on the blockchain.
Benefits of Tokenization
Tokenization is the process of converting rights to an asset into a digital token on a blockchain. Tokenization can be used to create new markets, improve liquidity and reduce transaction costs.
Tokenization can also help democratize ownership by enabling anyone with access to the internet and a smartphone to participate in investing in real estate or private equity deals that were previously only available to high net worth individuals (HNWIs).
Security in Tokenized Assets
- Tokenized assets are more secure than traditional assets
- Because they are stored on a blockchain network, tokenized assets can be accessed from anywhere in the world. This is especially important if you’re traveling or want to manage your investments from anywhere else other than home.
Tokenization is a process of converting rights to an asset or property into a digital token on a blockchain network. Tokenization can be used to create digital tokens that represent any asset or right, such as real estate, gold, art, collectibles and more.
The steps involved in tokenization vary depending on what kind of asset you want to convert into tokens but generally speaking there are three main phases:
Types of Tokens
There are three types of tokens:
- Security Tokens – These tokens represent an investment in the company that issued them. They can be used as a way to raise capital and/or as a tradable asset on an exchange.
- Utility Tokens – These tokens provide access to services or products within an ecosystem built around the token’s underlying platform.
- App Coins – These are a specific type of utility token where users can purchase digital goods (like games) using cryptocurrencies such as Bitcoin, Ethereum, Litecoin and so forth
Security Tokens and Utility Tokens
Security tokens are digital representations of ownership in an asset or a right. They can be used as payment for goods and services, but they don’t actually grant ownership rights to anything. Utility tokens, on the other hand, are digital representations of access to a network or service. They have no inherent value outside their use on that specific platform–they’re just coupons that get you into the club.
This distinction is important because it determines how regulators will treat your token: if it’s a security token, then any investment firm that buys one must register with FINRA as an investment advisor; if it’s a utility token (and not also classified as currency), then those same firms need only register with CFTC as swap dealers or security-based swaps participants.*
The definition of tokenization may vary, but what it has in common is the process of converting an asset or a right into a digital token on a blockchain network.
Tokenization is the process of converting an asset or a right into a digital token on a blockchain network. The most common types of assets are real estate, bonds, and equities.
Before you get started with tokenization, it’s important to understand the different types of tokens. There are two main types: security tokens and utility tokens. Security tokens represent equity in a company or fund, while utility tokens are used for their intrinsic value within an application or platform (think Ethereum).