Why Your Organisation Needs to Tokenize Their Tradeable Assets Using Blockchain
You may or may not have heard about blockchain tokenization and how organizations are capitalizing on it to create liquid assets for holders. This post is not a primer to learning what blockchain is about neither is it an in-depth about the fundamentals or about the blockchain being an ‘expensive database’ or about the ‘blockchain trilemma’ but we just want to talk about Tokenization using the Blockchain. Tokenized assets make investing in real-world assets more convenient and it allows investors to purchase shares in an asset with their given resources and sell easily without much bottleneck or bureaucracies associated with the traditional model of investing or buying securities/assets. Cost is also greatly reduced as paper trail and physical records become redundant, saving the environment.
A Recap to ‘Why Blockchain’
So What is Tokenization and why?
It might interest you to know that tokenism or asset tokenization has been in existence since the Gold Standard where paper money represents a certain ounce of gold. Tokenization, when applied to data security, is the process of substituting a sensitive data element with a non-sensitive equivalent, referred to as a token, that has no extrinsic or exploitable meaning or value. The token is a reference (i.e. identifier) that maps back to the sensitive data through a tokenization system. With the development and launch of Ethereum blockchain, tokenization of various assets class gained popularity, not only because of the security promised by the blockchain but the ease at which investors can easily relate with the buying, storing and ease of converting such tokenized asset to fiat. A tokenized asset on the blockchain creates;
Availability — Your token becomes available for trading from anywhere in the world and all day round.
Immutable — Ownership of a token is timestamped and hash-blocked to create finality of transactions, so ownership records of tokens can not be altered from an unauthorized actor.
Liquidity — Due to the availability of your token for trading and ease of access, liquidity increases from the expected value from trade made possible by the ready buyers and sellers.
Investment Limits — No minimum investment required. Holders can easily sell any volume of tokens they want to.
No MiddleMen — Removes the middlemen that often limit investment accessibility.
Transparency — Ensures transparency of transfer and ownership. Though the blockchain assures anonymity(some will argue that it is a farce cause the final destination is always fiat due to our world still being heavily dependent on fiat) this can easily be tied to a user whose identity is known via KYC. Also since transactions are carried out on the blockchain, it can be said to be open and transparency for any player/user with access.
Asset Class — Creates a new category of crypto financial products.
Who and What should be tokenized
Anyone that has a tradeable asset that is appreciable, divisible, and can be sold to more than one person can actually tokenize such assets. One industry actively making use of blockchain asset tokenization is the Real estate where each token represents the value of a square meter and sold to willing buyers, An example of a Nigerian Startup running such model is HouseAfrica.io. Banks are also capitalizing on blockchain tokenization, creating a stable coin with fiat backing for payment settlement; like JPMorgan. The Agricultural sector is not left out as well. Tokenism takes the form of crowd farming like Agrichainx is doing using Blockchain.
The adoption of blockchain tokenization gives organizations and those involved in the ecosystem transparency, easy liquidation of the token, and transfer to new owners aside from the security of timestamp hashing in a block.
Tokenizing through the Blockchain
This section is meant to be about the technical details you need to know in order to put up your organization’s token system but I am struggling on how to go about it in simple terms in order not to make it too technical so even though you are not tech-inclined, in charge of Tech department or the CTO, you’d understand. A salient note you need to put in mind is that investors/traders/shareholders don’t really give a heck about the underlining technology that powers the system. They are more concern about the benefits of the system rather than the features.
So what do you need to get started? First, take a look at your tradeable assets if it meets the necessary requirements of being a security or commodity. This will help you tow the right regulatory framework path especially as SECs around the world and even SEC Nigeria is putting up necessary guidelines for the ecosystem players.
The next step would be on deciding which Blockchain suits your needs; permission-ed/private blockchain or a permission-less/public blockchain. This will also determine the kind of Smart Contract programming and the infrastructure to set up and the cost. For a permission-ed/private blockchain, having a node(either cloud or on-premise) running is a cost you need to be prepared for. Also, your target market and expected volume of interaction is a factor to consider. There are still other factors to consider in terms of cost and the right kind of blockchain to use once you have decided to go private or public blockchain.
In Conclusion
I am still gathering my thoughts on how to conclude but you get the drift. You decide with the points above if your organization needs to tokenize or not.
Charles is a blockchain solution architect, full-stack developer with over twelve years of experience in the IT world creating applications, and running several startup ideas. Passionate about great ideas that have “Proof of concept” and scalablilty. #Fitfam gym dude and enjoys swimming when he is not working, in a bar, cooking, playing ping-pong or snooker.
twitter: justcharz
linkedin: linkedin.com/in/justcharles
