Get Use to the Word Tokenization: How the Digitizing of Assets is Leveling the Investor Playing Field
The Bitcoin bubble might have burst in early 2018, giving Millennials a taste of what generations before them had once experienced. This was a good thing though. The bubble shifted the focus from investing in a cryptocurrency to the technology that powered a completely new type of asset. Blockchain was the winner the day cryptocurrencies started to lose their value massively.
Blockchain allowed cryptocurrency to thrive in a world that was simply not ready for it, and it did this by offering a trustless system that needed no intermediaries. Of course, this was seized upon by the shadier elements of society as underground markets such as The Silk Road opened and thrived. That all changed with an increase in policing and by startups looking to solve age-old problems with the opportunities that blockchain offered.
Over the course of 2018, while the traders and miners were going through what many called the Crypto Winter, others were diligently working towards making blockchain for enterprise purposes. The initial applications were where trust is needed most. Supply chain and knowledge management solutions that enabled trustless sharing between companies boomed. There was a nascent idea of using the networks already built to release tokens that were stores of real value.
Tokens Taking The Place Of Securities
Tokens started becoming more and more popular as Stellar came to the fore. A distributed ledger technology that allowed transferring value, whatever that value was, to a neutral token. Use US Dollars to buy a US dollar token on the Stellar network and send it to someone thousands of miles away for them to receive the equivalent amount in Indian Rupees tokens that were then converted to real Indian Rupees.
This type of tokenization has opened up doors for startups to look at asset management in completely new and revolutionary ways. The most immediate impact could be to a complete change in the way securitization works. Securities are assets that are split into many parts and then sold to individual investors. Someone starts a company and makes shares, with each share representing fractal ownership of that company.
Now, many more assets are opening up to securitization thanks to the blockchain. Blockchain technology allows any physical asset to be subdivided into digital tokens. An artwork, for example, can be offered to a community to buy for a local museum. What was once in the realm of only the richest in the world can now be bought (and enjoyed) by communities at large.
Real estate is another asset that would benefit immensely from tokenization. If you have a house that is worth 500 000, but you only need a portion of that to start a business, say 50 000, then you are outta luck. You better hope that your bank will give you the money. However, with tokenization, the house can be converted into tokens and enough sold to fund your business.
On the other side of things, any individual can now get into property investment without having to fork out hundreds of thousands of dollars to own a full property. You don't need to be a billionaire to own a piece of a luxury building that will be earning you returns for a long time to come. That is the power of tokenization.
Problems Arise, As With All New Technology
The examples used above do pose some problems with blockchain, at least as it now stands. Regulations regarding cryptocurrencies are only just starting to solidify. While the bubble might have shocked legislators and financial watchdogs into action regarding the cryptocurrencies, there is little to no regulation or law regarding how tokenized assets are handled.
What rights to the property does a token holder have? What legal protections are the owner of a token (part owner of a property) afforded? The same question should be asked with regards to the majority owner or manager of the property. These are all very important questions that still need to be answered for tokenization to really take off.
Are tokens just securities? Do they need the same regulatory pressure? This is a question that many in the industry are asking and some outright reject tokens as securities. Securities are bound up in organizations, whereas tokens are on the blockchain. They have, for all intents and purposes, a degree of trust and transparency that traditional securities could never have. It is also worth point out, many say, that tokens can be bought and sold on a secondary market with ease by just about anyone.