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By Dutch Mendenhall
While the initial NFT craze we witnessed between 2021-22 has come and gone, the concept of tokenization has expanded to include dozens of other classes of assets. Today, digital tokens on the blockchain are not limited to purely digital assets, but can also represent physical assets in the real world. Everyone, from businesses to consumers, is beginning to wonder how tokenization will affect them and their assets, and they are beginning to see the profound opportunities it offers them.
Tokenization is the process by which real assets are “tokenized” by turning them into digital coins which can be stored and traded on the blockchain. Assets of all types can be tokenized — from tangible assets like property, land, or collectibles to intangible assets like stocks, bonds, titles, or even IP rights. Tokenization combines the intrinsic value of these assets with the powerful and secure technology of blockchain to create a new type of digital asset for the modern world.
Democratizing financial markets through tokenization
One of the main benefits of tokenization is that it enables the market to fractionalize ownership of high-value assets, such as real estate, by dividing them into smaller units and making them accessible to more average investors. In other words, rather than having to purchase an entire property, which requires a significant upfront investment, investors can purchase a digital token that represents their ownership of a portion of the asset and entitles them to the benefits of ownership.
Tokenization will also help increase the liquidity of assets, improving the overall efficiency and effectiveness of the financial market. While there are plenty of assets that hold some sort of tangible value — take real estate or fine art, for example — the nature of these assets makes them difficult to trade. Introducing tokenization to these assets enables a quicker, more practical system to trade them, opening the door for everyday people to buy a portion of these assets.
Finally, tokenization can significantly increase the transparency of transactions. Transparency is an inherent characteristic of blockchain technology, as it is based on an immutable and public record. Furthermore, blockchain technology eliminates most intermediaries that are the sources of opaqueness in financial transactions. All of this has the ultimate effect of meaningfully reducing the cost of transactions — a significant benefit to consumers.
In essence, tokenization is a boon for the crypto market because it leads to increased democratization of assets. These benefits — fractionalized ownership, liquidity, and transparency — will contribute to the fundamental goal of cryptocurrency: full democratization of access for every citizen. The purpose of decentralization has always been to put power back into the hands of the individual, rather than the institutions that tend to control traditional financial markets.
Assets that show potential to be tokenized
Real estate is one asset class that will significantly benefit from tokenization. Large transactions can be split up and liquidity improved through digital fractional ownership. One of the most obvious advantages of real estate tokenization is that the blockchain will allow real estate tokens to be based on blockchain tech with its added layers of security and anti-fraud technology. However, smart contract technology also enables better and more efficient distribution of payments, rentals, dividends, and more.
Collectible assets have already shown a wealth of success through tokenization. Part of the success of tokenized collectibles is due to these assets possessing some form of inherent value and consumers’ demand for them thanks to their collectible nature. This means there is a built-in community of people willing to spend their money to purchase the digitized asset representing the physical collectible. With tokenization, the average person can own a portion — no matter how small — of assets with larger-than-average values that most people previously never could have even dreamed of owning.
The prospective effects of tokenization
Many people wonder what tokenization will mean for crypto prices, and the result will likely be a substantial increase. Higher adoption creates higher demand and, as a result, higher prices. Especially considering that all major cryptocurrencies — including major players like Bitcoin and Ethereum — have a pre-set maximum supply, this limitation will create scarcity, subsequently fueling higher demand that will continue to push prices through the roof.
Ultimately, it’s important to remember that new technologies are almost always met with hesitance in history. Every major innovation — from cars to computers and the internet — was met with hesitance before eventually being adopted on a wider scale. This widespread adoption is almost always a precursor to a bull market and is the next step in the crypto market. As more institutional investors join the fray, there will be more investment opportunities and greater integration into our current legacy system.
The tokenization of real-world assets shows the potential not only to make transactions easier, safer, and more affordable, but also to democratize economic markets. Tokenized digital assets have unique properties that return the control of assets such as real estate and collectibles to the general public, rather than restrict them to those with large amounts of money. The result is a market that is much more equitable and accessible to all.
Author Bio
Dutch Mendenhall is the CEO and Founder of the RAD Diversified REIT
Disclaimer
The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.