Hello investors,

Today we will be looking into the benefits of asset tokenization to the future. It will do us good to really understand what this means. In the long run we will need little to no direct cash at hand, as more needs to reduce cash usage by nations and international bodies have been the talk for so long.

What is tokenization

Before we dive into the benefits of tokenization, let's try to know the meaning of tokenization.

Tokenization is the process of issuing a digital representation of an asset on a blockchain. Tokenization is a process by which PANs, PHI, PII, and other sensitive data elements are replaced by surrogate values, or tokens. Tokenization is really a form of encryption, but the two terms are typically used differently. Encryption usually means encoding human-readable data into incomprehensible text that is only decoded with the right decryption key, while tokenization (or “masking”, or “obfuscation”) means some form of format-preserving data protection: converting sensitive values into non-sensitive, replacement values – tokens – the same length and format as the original data.

Benefits of tokenization

Forbes gives a good explanation on the benefits of tokenization.
By leveraging blockchain technology, tokenization can secure both traded and non-traded assets. Furthermore, the advantages of tokenization include improved liquidity, quicker settlement times, reduced costs and strengthened risk management. Below, we highlight the benefits of tokenizing physical assets that market participants benefit from:

• Security: When a token is created, blockchain technology generates a unique address, ensuring strong data protection through access control, automatic rights transfer and remote decentralized file storage. Tokenization implies that only authorized users can access the system through unique tokens. Administrators, in their turn, can revoke or update them if necessary, allowing complete control over data access. Automated rights transfered through tokens entails assigning specific rights, such as read or write access, ensuring data is processed based on the earlier established rights.

•Efficiency: Tokenization diminishes transaction time by allowing 24x7 trading and triggering smart contracts based on predefined parameters. Consequently, settlement times are shortened from their current duration of, at best, T+2 to near-real-time transactions. This results in counterparty risk mitigation during transactions and lower trade break odds. As all the essential data is stored in a smart contract, tokenizing assets makes it possible to conduct transactions without hated red tape. In this way, transactions are accelerated while simultaneously being uncensored.

• Flexibility: Assets cannot be divided into smaller pieces in the real world. For example, selling a fraction of a company share or 1/20 of an apartment is not feasible. However, this constraint is eliminated when assets are tokenized because tokens represent parts of ownership that can be traded, making them available for a broader array of investors. In 2021, the Swiss crypto bank based in Zurich accomplished a groundbreaking feat by recording the legal ownership rights of Picasso's 1964 masterpiece "Fillette au béret" on the blockchain. At a price of 1,000 Swiss francs ($1,040), over 50 investors bought 4,000 tokens of the artwork.

• Convenience: Some time ago, physical presence was often required to complete transactions. With smart contracts, assets can be sold or purchased anywhere at any time. Additionally, public blockchains are inherently accessible to individuals worldwide without any external barriers to entry. However, compliance with AML (anti-money laundering) and KYC (know your client) regulations and programs is required in the institutional market, limiting the widespread adoption of public blockchains. Even so, several public blockchains now incorporate KYC and AML measures, which have increased trust and expanded tokenized digital asset usage.

Understanding Asset Tokenization

What is asset tokenization?
Dgverse puts it as a process leveraging Distributed Ledger Technology (DLT) or Blockchain to create digital tokens representing physical or digital assets. Once generated, these tokens are enshrined in the blockchain, ensuring immutability and tamper-proof integrity.

These tokens serve as digital certificates of ownership, capable of representing a vast array of assets—whether physical, digital, fungible, or non-fungible. The possibilities are boundless, from real estate and commodities to sports teams, artwork, and even celebrities.
The Present Reality: Asset Tokenization in Action
Asset tokenization is not a distant vision; it's a present reality. The market is witnessing an unprecedented surge, with predictions indicating a remarkable growth trajectory. By 2030, asset tokenization is expected to burgeon into a market worth at least USD 10 trillion, marking a 40-fold increase from 2022 to 2030. This meteoric rise underscores the growing recognition and adoption of tokenized assets.

Benefits of Asset Tokenization

1. Increased Liquidity: Tokenization enhances asset liquidity, unlocking new trading opportunities.
2. Transparency: The blockchain's transparency ensures a clear and auditable record of asset ownership and transactions.
3. Accessibility: Tokenization allows for fractional ownership, making investment opportunities more accessible to a broader audience.
4. Secure Identity: Blockchain's security features safeguard the identity and ownership details of token holders.
5. No Intermediaries: Direct peer-to-peer transactions eliminate the need for intermediaries, streamlining processes.
6. Faster Settlements: The decentralized nature of blockchain facilitates faster and more efficient settlement processes.

Tokenization's Reach

Looking into Forbes assertions;
Tokenization has immense potential and can be applied in various fields.

• Real estate: Real estate is an enormous and expensive market, making it challenging for novice investors to participate in significant projects. With tokenization, multiple investors can own a part of a property, making real estate contributions more accessible to a wider audience. In addition, tokenization streamlines the automatic income distribution between stakeholders, deals with property-related rights, such as inheritance, and facilitates liquidity for real estate operations.

• Asset management: When assets are tokenized, they can be divided into smaller pieces, providing potential investors with the chance to acquire even a fraction of a single share. By splitting securities, commodities or other financial assets into smaller denominations, investors benefit from greater affordability and flexibility in managing their portfolios.

• Contracts: Contracts and agreements can be managed more efficiently through tokenization. In such a system, digital tokens represent contractual obligations or terms, ensuring more efficient agreement management by automating the contract execution, verifying real-time obligations and extending existing agreement.

in conclusion:

Powered by blockchain technology, tokenization has evolved significantly since 2001, creating new opportunities across various tech domains. Nowadays, the perspectives of tokenization are vast and far-reaching since the technology increases transparency, immutability and security. With continued development and integration with other emerging innovations, such as AI and IoT, its applications are endless.
In essence, as we look to the future, we envision a world where every tangible and intangible asset finds its digital representation—a token within the DLT/Blockchain. The era of asset tokenization is upon us, promising a paradigm shift in how we define, trade, and engage with assets.

Credits:

Forbes

Dgverse

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