August 1st, 2018

Tokenize it! Go all the way!

Tokenization as an instrument

The entire year of 2017 was spent under the umbrella of ICO movement. Everyone and their mother did crowdsales, from serious international businesses to simple dreamers in pursuit of changing the world.

As the hype mellowed down what we found left was not really the bitter taste of disappointment, but rather a question: “Having a tool that’s worthy, powerful and elegant, what were we to do with it?”. If we look beyond the investment part that primarily attracts traders and venture investors, what is there to do with tokens? What are they for?

Yes, every project has its own intended yet sometimes very questionable purpose for cryptocurrencies in terms of utility and applicability. So 2018 is the year when we answer the question of how will we end up utilizing the one, the almighty blockchain.  One of the answers is obvious – tokenization of both digital and tangible assets. Take a wild guess why many solid companies began to recognize and consider using utilitarian tokens in this way and why it is gaining momentum.

Tokenization is a process of allocating a base value to an asset (physical or digital), and representing it in cryptocurrency. Each token confirms the ownership of a certain percentage of this asset.

Suppose you urgently needed $ 50K and at the same time you have a land with an equal worth. Running to the bank is not the worst idea, but the bureaucratic machine is slow, and money won’t fall into your hands any time soon. Putting up a part of that land that amounts to $50K won’t work either. That means if you don’t fulfill your obligations in time, you will lose not 50, and not even 70, but almost all the money paid for the land loan.

However, blockchain and cryptocurrency can solve this problem in a blink of an eye.  For instance, you can divide the land by 500,000 shares and release 500,000 tokens. Then 1 cryptocoin will determine 1/500000 of the land share and cost 1 $. Using a specific platform, you’ll be able to sell exactly the part necessary to get the required amount.

The value of any asset – property, goods, your persona; social capital  can be expressed in the cryptocurrency. So, Fujitsu has launched a blockchain service for tokenizing bonus points and cumulative discounts in commercial networks, and Bankex project allows you to monetize your social media activity and popularity with tokens. Shares, securities, liabilities and even fiat currency – you can transfer everything into crypto.

Cryptocurrency enthusiasts quickly appreciated the advantages of this approach. This appreciation lead to a number of new projects making the process of “digitizing” anything just a trivial task for the user. Bankex, Blackmoon, TrueUsd, Brickblock are one of the first but definitely not the last Tokenization movement representatives.

For all the criticism ERC20 algorithm received, it gave birth to a legacy called smart contracts. They guarantee the rights to a property share, expressed in a certain amount of tokens. Because of this we can safely change, sell and transfer assets. Thus, we took some value, tokenized it and created its digital representation to be stored on blockade.

In return, due to it’s integrity, blockchain guarantees the authenticity all data entered into it, so you can safely and proudly control your property.

To sum up, let’s list several main advantages of tokenomics:

  • increase in assets liquidity. Divided into shares, they become more convenient in terms of sales and exchange
  • guarantee to keep the rights to property and transfer them to the buyer safely and fully.
  • transaction and time costs reduction due to the ownership or asset change (partial or full).

However, lack of legislative practices is a serious obstacle to obtaining full tokenization. Smart contract is not a sufficient enough document to confirm  ownership.

A number of countries including Switzerland, Malta and Estonia are actively introducing amendments into their legislation. Companies, operating under these jurisdictions have legislative advantages when it comes to blockchain and crypto integration in traditional economy.

Still, changes pretty radical: Malta government intends to create a “blockchain island” by the end of 2020. China’s central bank introduced a blockchain-based platform for digitizing check payments. Canadian CSE launches a platform allowing adjustable tokensails. United States, Canada, Switzerland, Singapore, Japan and the UAE introduced a series of laws authorising ICO under government regulations.

So far, however, there have been no cases of tokens or smart contracts being recognized as an alternative to the affidavit of ownership. For now, real organizations are compelled to act as mediators between the state and the user, a sort of chargé d’affaires.

Tokenization, as an instrument of social and business ties, still requires political and legal amendments as well as revision of market paradigms. Though, when in good hands, it is already a powerful and reliable tool for various applied tasks.