The process by which real-world assets are turned into something of digital value called a token, often subsequently able to offer ownership of parts of this asset to different owners.
Tokenization is a buzz word that is commonly thrown around the blockchain and cryptocurrency world. However, despite the fact that this word is commonly used, many people do not know what it actually means. In this article, we will break down everything that you need to know about tokenization so that you can be fully informed about the topic.
Tokenization is the process of turning various items into digital assets called tokens. Tokens typically operate on blockchains and are controlled through smart contracts and algorithms. Many different types of assets can be tokenized. For example, real estate, works of art, percentages of ownership in a company, etc. can all be tokenized.
Tokenization is becoming more and more popular because it reduces friction for companies wanting to obtain funding by selling assets on an open market. For example, companies who do not want to deal with the IPO process can potentially issue a token instead of a stock offering. Blockchain tokens are commonly traded on cryptocurrency exchanges and are subject to price swings based on supply and demand.
Both security tokens and utility tokens have proven to be extremely useful and desirable. They are different from traditional cryptocurrencies like Bitcoin and Litecoin, but they both still use blockchain technology and are both tradable financial units. As the entire blockchain space is still in its initial stages, the regulatory framework for both utility tokens and security tokens is still being figured out around the world.
However, it is extremely likely that more and more companies will create both utility tokens and security tokens in the near future.
Tokenization provides companies many benefits. It gives them a way to help their users use their products and to reduce dependence on third parties for securing public funding. For this reason, both the security token market and the utility token market will most likely continue to grow substantially in the coming years as more and more companies figure out how to use them to their advantage.