Blockchain technology has definitely brought more than cryptocurrencies to the equation. Now businesses have various ways to utilize it in their business processes through enterprise blockchain. Another way blockchain aids business processes are through asset tokenization.
Tokenization opens up numerous opportunities in the assets market for diversification and growth.
And while asset tokenization has mainly been successful going by the growth in its market size. Issuers and investors see profits from it, but not every business is ready to jump on board yet. Some still fear implementing it in their companies, and understandably so. Blockchain technology is still relatively new, and most people don’t understand how it works, so they also don’t understand tokenization.
In this article, you’ll see what asset tokenization is and how it can benefit your business. Hopefully, you’ll learn enough to help you can jump on the bandwagon and earn profits from it.
What is asset tokenization?
First, an asset is any form of resource that can make up your business or individual equity. It must have commercial value and is used to determine your level of wealth. Assets can be tangible or intangible. Tangible assets are those with a physical representation such as equipment, real estate, inventories, precious metals, machinery, furniture, vehicle, or collectibles.
On the other hand, intangible assets are those you can physically hold, including trademarks, patents, copyrights, franchises, trade names, or even things like sports careers. Other more recent categories of intangible assets also include blogs, websites, and social media accounts. These latter assets give appreciation to the associated brands. In the same category are cryptocurrencies.
Another category in the intangible assets but viewed as a stand-alone asset category are the financial assets. Although intangible, these assets are linked to contractual agreements representing financial rights and guarantees. The most popular financial assets include stocks, court orders, variable and fixed income securities, futures contracts, and debentures. In tokenization terms, these financial assets are called security tokens.
Tokenization is therefore creating a digital format of any of these assets to be offered to investors or buyers in the market. It’s one of the best alternatives for businesses or individuals looking to raise capital for their projects faster, securely, and transparently. Smart contracts are the key driving force in the entire tokenization process, including future payments.
You can consult reputable blockchain developers to understand the process or know how to get started, such as PixelPlex security token offering services. Here are the benefits of tokenized assets you should know.
Blockchain offers a transparent way of recording and storing transactional information. In tokenization, all transactions are processed and recorded in a digital ledger in the blockchain network, each receiving a unique key for identification. Being a peer-to-peer network, all computers or peers keep transactional history data such that, it’s difficult to manipulate.
This eliminates the risk of having a single point of failure. Any attempt to alter data will be rejected as the network won’t accept the changes. When transactions are this transparent, it increases trust with investors — something important to investors, particularly newbies looking to start investing in blockchain.
Greater process efficiency
Another upside of apps and processes built on blockchain is speed. If you have been frustrated before when a process won’t complete because the systems are too slow, you will fall in love with asset tokenization platform. Blockchain speeds ensure instantaneous or almost instantaneous responses that eliminate delays and boost process efficiency.
However, speed isn’t the only factor that boosts efficiency in this case, which raises the number of transactions you can complete. Effectiveness is also in the contract itself, powered by smart contracts ensuring all conditions are met before completing and effecting payment.
You can easily create fractional assets by dividing bigger assets into smaller parts, effectively increasing your investor reach. Instead of offering an entire real estate token as one and targetting only investors who can afford it at a high price, creating tractional tokens give you the ability to break it down.
This way, you attract a larger pool of investors by making your offering affordable and easily accessible to a larger mass. The ability to broaden access to your tokens accelerated the share-selling process significantly while at the same time giving the asset a high demand.
As stated elsewhere, the tokenization process is entirely on a blockchain network, which is peer-to-peer. All the computers on the network have to validate every transaction made. When a smart contract for tokenization starts, all the peers have the same version across the board. This lowers the risk of manipulating or altering the information in the records.
In the traditional methods of selling your company’s shares, there are just too many third parties you have to go through. Before your shares are listed on a stock exchange, you’ll need to clear with auditing and cleaning firms, transfer agents, brokers and registration, and security custodians, just to mention a few.
First, these can add up to the costs and complexities of transactions. It may also be a security risk vector due to the many processes the shares have to go through. But tokenized assets don’t have to go through that process, making them more cost-effective.
Asset tokenization is a funding strategy you should highly consider in your business in the current age. The ability to tokenize physical, tangible, and intangible assets in a decentralized manner makes investing safer, efficient, and more cost-effective. Something you should consider.