The answer to what is asset tokenization is that it is a fairly basic concept that can, however, be a little confusing for some people to grasp right away. The process of tokenization helps in converting physical and non-physical assets into the blockchain system. The scope of tokenization has gradually extended to a number of blockchain applications connected to our traditional industries such as real estate, artworks, and even stocks.
Asset tokenization picked up pace and popularity through cryptocurrency, however, its origins go back to the data security systems of financial services in the 70s. There are a large number of influential corporations and enterprises in finance that make use of tokenization for the protection of sensitive and confidential data.
Tokenization can mean two things. One of which is the payment tokenization which is replacing users' sensitive information with tokens that are technically a string of non-sensitive letters and numbers etc. These numbers and alphabets are at random and virtually selected and usually have a strict code that produces them. However, asset tokenization means a different process. Keep reading to understand how asset tokenization works.
The Types of Tokens Used for Asset Tokenization
There are basically two types of tokens that can be used in asset tokenization over the blockchain. These both vary based on the nature and speculation of the transaction in question.
The first category of tokens includes tangible, fungible, and non-fungible assets. These assets are those that hold some monetary value and also a physical form in reality.
Gold Tokenization is one of the most surprising and leading examples in this regard. Fungible assets have tokens that have an equal value to one another while non-fungible assets are unique and thus cannot be interchanged.
Besides these, there are several other categories of asset tokens such as currency tokens, utility tokens, and security tokens. As one might guess, currency tokens represent currencies in a digital form over the blockchain, while utility tokens are used to raise funding for developing cryptocurrencies. These can be used to purchase or sell services and products over a crypto platform.
The category of security tokens represents traditional securities amongst cryptocurrency trends. These types of tokens are most commonly used in asset tokenization through the distributed ledger and the blockchain technology overall.
Real-World Applications of Asset Tokenization
Asset tokenization has developed into a number of real-world applications via the blockchain, including NFT and more. This has helped users develop their own customized plans and solutions for advancing their industries. The blockchain is growing rapidly in significance with each passing day and with that the relevance of asset tokenization is settling in as well.
There are a number of industries that have turned to asset tokenization. Here are the three most common domains which have witnessed the rapid adoption of asset tokenization in recent years.
The real estate market has seen the most rapid adoption of asset tokenization across all niches. This has given investors and financial institutions the opportunity to connect and hold transactions via the blockchain. Since there are no middlemen or regulatory authorities to slow down the process, buyers and sellers can interact and come to decisions much more efficiently.
This efficiency has improved the liquidity of real estate and opened the market to a larger group of investors and prospective buyers. All in all, asset tokenization has been a success when it comes to the real estate market.
The healthcare sector has benefitted immensely from asset tokenization as well. A huge number of health care institutes have created solutions based on tokenization. Asset tokenization is basically a new way for crowdfunding. So when it comes to healthcare, it means that scientists can gather funding for their new research projects or medicine tests much faster.
The finance industry has been making strides through the blockchain and asset tokenization in extension. This industry has developed a number of applications that cater to the process of the finance industry. They capitalize through the resources they invest into the blockchain and thus reform and update their finance industry. Asset tokenization helps in contributing to product transformation and industrial structuring. Financial organizations' overall exchange and transactions have also been made much more efficient.
The idea of asset tokenization has gained a lot of popularity and has become a significant part of the blockchain system. It has become an essential method of asset management and overall market management. Asset tokenization holds great potential in changing the face of the blockchain system and making it more accessible to the masses. Tokenization of fairly any asset is quite an easy task and thus there is a lot of potential to increase the scope of blockchain use.