I think everyone knows and is aware of what assets are. An assset, in simple terms, is something that holds economic value for a while and can generate income if required. In today’s world, almost everyone has assets. But a big challenge with assets like land, gold and other physical forms is the issue of their security, and maintainance. Now, what if I told you that you can convert your real-world asset into a digital asset and it’ll be worth the same, only in currency/token form?
This is where Tokenization comes in.
What is Asset Tokenization?
It is the conversion of a real-world asset or off-chain asset owned by someone into a digital token. A token is a unit of cryptographic information that assists a real-world transaction.
In the real world, everything related to ownership is done on paper documents while being regulated by the legal rules and policies. Similarly, a token on a blockchain network is like paper documents being regulated by the blockchain system. Once this ingenious process is complete, these tokens act like digital stocks with clear owners. This is moving forward to paperless transactions.
How does it work?
Most people in crypto use nonfungible tokens (NFT) and digital art interchangeably. Tokenizing an asset can be achieved in various ways but one characteristic is mandatory: a sound legal structure that links the token and the asset. Other factors include which asset is being tokenized, which country is this taking place and the country’s rules, etc.
How to tokenize an asset?
This is how you can tokenize an asset in a couple of steps-
- Choosing an asset– Doing thorough research on which asset is very important. Seeing its trade rate and future predictions is a must.
- Business model– You need to have a reasonable vision of how your tokenized stage will create and deliver value. Arranging key activities, characterize a client base, etc.
- Economic strategy– Having the correct balance of the value of your token is important as you can’t keep it too high or too low. Creating a framework of how you want to go ahead will be of immense help.
- Legal and Technical requirements– How many people do you need? Do you want an experienced team or freshers? What are the rules of the country you’re staying in? An experienced and qualified team will provide such answers.
- White Paper– The most important step. It’s like reading the back of a book to know the basic story only the book here is your off-chain asset. Publishing this will provide you with a link between blockchain/crypto specialists and possible investors.
- Testing– Like how you do with any other product or service, testing this token gives a lot of insight into how other clients may react and gives more time to fix some features for the final version
- Attracting Investors– If you’ve followed the previous steps, this should be very easy for you.
- Networking– You’re done! Now all you have to do is spread the word and start working. Content and video marketing, PR, social media accounts, etc should be managed by your team.
Benefits of tokenizing
It has many benefits-
- It has a simplified exchange as being on a decentralized network the transaction is verifiable and for all to see. Each token has all the details required including signatures and time stamps.
- Having worldwide access makes it easier as the information is the same across the world. It also attracts new investors and clients.
- Being highly liquid, it finds more purchasers as compared to off-chain assets. Due to reduced entry barriers and lesser time required in the whole process of the trade, it makes buyers more willing to buy.
- It has a lower risk as all the information is for everyone to see. Thus being transparent, risk reduces.
- Transactions and trade are also much cheaper due to no third parties involved.
Dues to this the DeFi markets have also bloomed giving way for start-ups to shine. Overall, with proper rules, regulations, and testing this could be the next best thing. But the biggest challenge will be the legal issues of the country you’re residing in. As long as you’re in the clear purchasing real estate property will be as easy as registering for an Uber or Robinhood.