What do we mean by Tokenization?


In this era of Crypto Economy disruption, a new concept has been introduced, called tokenization. During our events and in several of our articles, we often mention this word. So, what do we mean when we say tokenization of Business models and assets is going to be a big thing in the future?

Let’s start with a simple definition: Tokenization means converting rights linked to an asset into a digital token running on a Blockchain.

Most financial institutions and technological company all over the world are researching how to move real-economy assets onto blockchains to gain the advantages of Crypto Technologies (transparency, decentralization, lower fees) while keeping the existing features of the asset. 

What’s the difference between coins and tokens?

First things first, since a lot of people don’t precisely know the difference between them. Many think that coins and tokens mean exactly the same thing. A coin is an asset that is native to its own blockchain, thus being able to create its own coins and pay miner fees with that particular asset. Think about Bitcoin or Ethereum. On the other hand, tokens are created on existing blockchains. If a project is powered by a token, it means that the project runs on a supported blockchain such as Ethereum.

Let’s take the case of Ethereum. In fact, thanks to the creation of smart contracts, Ethereum is the most commonly used blockchain for issuing a token. This allows other developers to build on top of Ethereum protocol, introducing a large number of new Tokens. Tokens are the top layer built upon a specific protocol. For instance, Noku Token is an ERC20 token and it is defined as a utility token (since it allows access to the Noku platform functions).

Can we Tokenize “Real World” Assets?

Blockchain technology has the power to change many business models because of its transparent, immutable, and distributed features. Just in the way like bitcoin is reshaping the financial panorama, tokenization of assets on the blockchain can make investing in assets such as stocks and real estate more convenient and efficient.

Generally speaking, thanks to tokenization you can convert an asset into a token that, because of its nature, can be moved, recorded, or stored on a blockchain. It may sound more complicated than it actually is. To make it easier to understand, I will try making an example. Imagine a physical object, like a painting (work of art) and convert it into a token that can be redeemed, fractioned, transferred along a blockchain system. The same approach can work with other physical industries such as Renewable energies or the Real Estate market.

We are talking about assets which cannot be easily bought and sold.

Even though they are very large markets, they are illiquid, material assets; accessing the money locked up there is a rather hard and time-consuming procedure. However, with Blockchain Technology, we can now liquidize the illiquid.
Let’s take another example:  windmills and solar plants. Investing in renewable energies as an individual is hard since it might require large start-up capital. However, investing in a solar plant with a group of people, thanks to trust guaranteed by Blockchain, may be a solution to liquidity and transparency, using the concept of fractional ownership.
Blockchain’s ability to tokenize assets is pretty much limitless. Tokens of every type: from restaurant tickets to equity shares, from bingo numbers to shares of an investment fund. So what’s keeping us from doing this? Surely adoption which will need its time but the great news here is that technology is not a problem since Noku has already developed platforms (see TokenRaise) to achieve these goals.

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