The unprecedented growth of cryptocurrencies has opened an opportunity for investors looking to harness the numerous opportunities of the blockchain. Cryptocurrency, though the blockchain has merged many industries, allows for the production of traditional assets with real-world use. The development of these assets is called asset tokenization. Upon initial glance, tokenization refers to recording asset ownership on the immutable digital ledger. Now, it offers different opportunities, from breaking down barriers to ensuring liquidity. This article discusses everything you need to know about asset tokenization in 2024.
Article Overview
- What is asset tokenization?
- The tokenization processes
- Benefits of asset tokenization
- Different types of asset tokenization
- Tokenize real-world assets with PTPShopy
What is asset tokenization?
Asset tokenization is the process of recording the rights of ownership of an asset on the blockchain so that it can be bought or traded like a digital token. Each recorded asset represents an equivalent physical asset, bringing more liquidity to illiquid assets. The blockchain has allowed for the tokenization of virtually any kind of asset in the world. If you think about or even touch it, you tokenize it.
One advantage asset tokenization offers is the easy fractionalization or division of assets to allow for better ownership. Usually. These physical assets are held by a few powerful people, making them inaccessible for the common man looking to get their hands on them. With tokenization, compact assets can be broken down and shared with many hands. This division paved the way for direct and peer-to-peer trading that once required the service of middlemen. With a smart gadget and an intent connection, anybody can trade their tokenized assets, ensuring security, transparency, and efficiency in the marketplace.
The tokenization process
The process of tokenization on the blockchain involves issuing a blockchain token or a security token to represent an equivalent amount of a physical asset it is being paired with. In simpler terms, blockchain asset tokens represent real-world assets. So, if anyone can convert any asset into a token, what process does tokenization entail?
Develop the digital token
The first step in asset tokenization is to create the tokens that represent the assets you have at hand or in mind. Token development involves creating a digital legal entity that would only exist to represent any assets of yours. It is immutable, and any alteration of this token to represent any other value can risk legal suit. In the legal documentation or agreement, the token only represents that asset, and owning any amount confers the user with a portion of that real estate.
Implement the smart contract
After settling the legal aspects of the token’s development, it’s time to implement the smart contract. A token’s smart contract is likewise important and must be error-free. It governs important financial activities like token issuance, balance tracking, payment, and other payouts associated with owning the token. These decentralized programs are written by professionals in Solidity or other approved programming languages to perform the above-listed activities. The token’s code must be transparent, auditable, and bug-free.
Sell and share the token
Once the smart contract is revised and perfected, it’s time to sell and share the tokens with the public or investors. There are different ways to get your token across; you can choose to organize a private or public sale. You can follow other tokens by employing the whitelist model. Once a considerable number of these tokens are shared or sold, the holders can add value by holding, trading, or even performing asset management activities. For profit-driven organizations, organizing a secondary sales market is quite common. There, the tokens are traded, attracting a broader range of audiences and investors.
Asset tokenization requires different activities, from meeting the outlined legal requirements to perfecting the smart contracts. To cut down on tokenization, consulting professionals have always been the preferred option for many high-performing companies.
Benefits of asset tokenization
Owning crypto tokens offers different benefits, and they include:
Promotes liquidity
Tokenization of real-world assets allows a large population base to get access to a limited number of assets. Traditionally, asset acquisition was deemed difficult or even possible due to its illiquidity. With blockchain, tokenized assets can be exchanged easily for cryptocurrencies or fiat currencies, offering a broader range of investments for everyone.
Cheaper Transactions
With the development of crypto tokens, investors can now bypass middlemen, who were usually the main regulators of the traditional market. Transactions are now cheaper, eliminating the need to pay for middlemen’s expertise, and faster as the smart contract automates every financial process. In addition, investors can buy and sell their tokenized assets at any time of the day from the comfort of their homes.
Transparency
Asset tokenization depends wholly or partially on the possibilities of the blockchain. Therein, users can use the public translation details to cryptographically verify all transactions. Since every transaction is time-stamped and connected, authenticity is guaranteed.
Lowers the barrier to entry
Asset tokenization lowered the barrier to owning any assets. In previous years, owning an asset was restricted to certain people with better financial records, plus the paperwork involved and other legal formalities deterred people from owning assets. Now, anybody can participate in high-minimum investments that feature long lockup periods with considerable returns. Blockchain accelerates the settlement process and consumer payouts by offering it in tokenized assets or a preferred cryptocurrency or fiat currency.
Different Types of Asset Tokenization
Tokenized assets have multiple use cases, and they come in different forms depending on the specifications. The following are the types and real-world use cases of tokenized assets:
Security tokens: Security tokens are digital tokens of a particular investment that represent the shares or voting rights of a company or centralized body. These tokens can also represent anything tangible or physical with value and can be programmed to represent a long array of features.
Tokenized securities: Often used interchangeably with security tokens, tokenized securities are digital representations of preexisting security and are designed to be an equivalent of such security. Tokenized security mainly exists to diversify the investment market and provide more liquidity to the security that is being tokenized. It eliminates the need to add more cryptographic specifications to the already-existing security tokens.
Utility tokens: Unlike security tokens, utility tokens represent a unique product or service rendered on the blockchain. There are many utility tokens in the cryptosphere, and they are generally used to power the blockchain network’s consensus mechanism. Others are used to pay for gas or transaction fees, confer voting power to users in a decentralized autonomous organization (DAO), or even conduct operations on the network. Utility tokens offer many practical uses, unlike security tokens, which are mainly used to confirm ownership.
Cryptocurrencies of currency tokens: Cryptocurrencies are the pioneers and are developed to be traded and spent. They have similar characteristics to fiat currencies like the United States Dollar and are backed by underlying assets, which can either be a financial reserve or Some cryptocurrencies’ values are linked to their blockchain network or distribution mechanism.
Tokenize real-world assets with PTPShopy
Before the advent of blockchain tokenization technology, the traditional economic structure depended on centralized organizations and banks to certify and verify the integrity of assets and transaction ledgers regarding these assets.
This procedure gave room for human error and allowed for the immutability of records. With blockchain, the power of verification now lies in the hands of a digital ledger that is immutable and does not allow for tampering.
PTPShopy facilitates security token development, simplifying tokenization processes and procedures. It provides ERC-20, BEP20 or ALGO options for security tokens on blockchain and promotes compatibility.
