For those who don’t know yet, NFTs (Non-Fungible Tokens) are digital entities that use a similar type of blockchain technology to secure cryptocurrencies. NFTs are not traditional products like apples or oranges, but tokens that represent digital assets. Known as colored coins, NFTs use the existing Bitcoin infrastructure to distribute and represent the management of certain rights over assets such as digital property and collectibles.
When NFTs were first proposed for inclusion on the Ethereum blockchain, the authors envisioned them being used for physical objects, digital collectibles, or even tracking “negative value” assets such as loans. They are digital representations of assets and are compared to digital passports as each token contains a unique, non-transferable identification to distinguish it from other tokens. Non-fungible tokens can be used to prove ownership of digital items such as game skins, all the way to ownership of physical assets.
Non-fungible tokens are not traded on standard cryptocurrency exchanges, but are bought and sold on digital marketplaces such as Openbazaar or the Decentraland LAND virtual gaming market. For crypto collectibles, such as CryptoKitties collectibles, non-fungible tokens can be used for digital assets that need to be differentiated from each other to prove their value or rarity. Digital assets can be valuable digital collectibles (like CryptoKitties), digital currencies (like Ethereum), or even tokens that represent annuities or insurance policies.
Essentially, blockchain tokens provide a complete or shared digital representation of ownership of any entity with a specific value. The simplest answer to what is blockchain asset tokenization is that it is the process of issuing blockchain tokens to digitally represent any real tradable asset so that even a single asset can be traded. Asset tokenization is the process by which issuers create digital tokens representing digital or physical assets on a distributed ledger or blockchain.
Blockchain technology allows you to create a unique, one-of-a-kind digital token that embodies a virtual or physical asset. Potentially, any physical asset can be “tokenized” and blockchain technology can be used as a trusted global ledger of ownership and a platform to provide liquidity for these tokens. In addition, tokens also make it easier to exchange ownership of indivisible assets on the blockchain network.
The possibilities are endless as tokenization allows for both partial ownership and proof of ownership. Tokenized assets can be designed to be freely tradable online and allow investors to acquire fractional ownership of the underlying token asset. An example of the latter is Mattereum, which aims to provide unrestricted token-based representations of physical assets in order to allow physical objects to be automatically referenced through their tokenized representations. A typical example of tokenization is mileage programs that can be converted into specific goods, services or flights.
The next step in the evolution of NFTs is to “tokenize” physical assets and then use those NFTs to prove ownership and allow the transfer of those physical assets. It is important to remember that since NFTs are blockchain-secured, this creates an extremely secure way to transfer ownership of these NFTs and indirectly transfer ownership of any assets (virtual or physical) they represent. A delegated POS system means that anyone can create tokens for any physical asset, digital asset, or other object they would like to tokenize. Blockchain asset tokenization is very similar to securitization and fractional ownership, but it contains some key differences that we will cover just before diving into the tokenized world and discussing the types of tokens.
The world is now discussing the prospect of using tokenization as an important tool to transform traditional use cases of asset ownership and management. Although the development of real estate tokenization continues to be hampered by a lack of financial markets, weak legal frameworks for digital assets, and low levels of investor awareness, real estate tokenization is becoming an increasingly popular investment activity. However, according to a study by real estate services firm Cushman & Wakefield, one of the most promising use cases for blockchain in the global real estate market is asset tokenization.
Ever since the first blockchain was invented about a decade ago, developers from a wide variety of industries have found it useful to tokenize assets. Digital business models extend to physical assets and non-fungible assets, which are represented by tokens on the blockchain, unlocking trillions of euros in illiquid assets and generating revenue streams. From traditional assets such as venture capital funds, bonds, commodities and real estate to exotic assets such as sports teams, racehorses, artwork and celebrities, companies around the world are using blockchain technology to tokenize just about everything. Cryptocurrencies, utility tokens, security tokens, privacy tokens… digital assets and their classifications multiply and evolve along with cryptography and blockchain technologies.
Tokenized assets on the blockchain can be tangible, such as gold, real estate, and artwork, or intangible, such as voting rights, ownership, or content licensing. In the blockchain ecosystem, tokens are assets that allow information and value to be transmitted, stored and verified efficiently and securely. Intangible assets can be easily converted into tokens without any storage or delivery issues. A token can be defined as “a digitally scarce unit of value whose properties and circulation are specified by computer code.”
A common feature of the various types of tokens is that they are computer codes that make up a digital representation (of something) recorded in a distributed ledger. Such tokens are usually fungible with each other, like shares of the same class in a company, and are described as being fungible (i.e. fungible). These tokens exist on-chain, serve as a store of value, and carry rights to the assets they represent, while the real-world assets backed by these tokens continue to exist off-chain. This concept is not new. Non-Fungible Tokens (NFTs) are similar to trading cards you may have collected in school, except these cards do not exist outside of a computer and can be copied, emailed, tweeted or deleted with impunity by third parties without harm. the NFT itself.