We are currently living in an era where technology plays a predominant role, which has resulted in both positive and negative aspects.
However, in various aspects of the economy, technology has shown great advances that make our lives easier.
An example of this can be seen in banks. To avoid giving us checkbooks and other papers that symbolize the existence of a bank account, they give us a device whose code changes from time to time.
This device has the name of digital token and its function is to allow us to make transactions only using the code that is on the screen of the device.
In addition, we can consult our account information without having to go to a bank.
Certainly, in the world of cryptos, we have a great diversity of tokens that not only symbolize money, but are used as the new value titles of different assets in this era.
Get ready, because today we will take a look at what the tokenization process consists of and how it works. Without further ado, let’s get to it!
Tokenization is the process by which an asset is converted into a digital token that can be moved, stored or recorded on a blockchain.
They can come to symbolize a digital or physical asset such as real estate, bonds, fund units, and so on. You name it, it can be digitally represented in a token.
Simply put, tokenization converts the value of an object, such as a painting by your favorite artist, into a token that can be used within a blockchain system.
Unlike digitization (when we convert a physical asset into a digital one), in tokenization we convert a tangible or intangible asset into a decentralized blockchain-based one.
From this point on, their representation is in tokens and their exchange or transfer will be carried out using a blockchain.
In this way, as with a Bitcoin, we store our money or assets in our wallets and can transfer them to anyone at any time.
There are two types of assets that can be represented as tokens on a blockchain:
Fungible assets are interchangeable and each unit of the asset is exactly the same and has the same value.
For example, every 5-euro bill represents that amount: 5 euros or 1 bitcoin is, in all cases, 1 bitcoin. Therefore, the fiat currencies of financial systems are fungible.
Usually, they can be divisible. Following the example of the euro, we can divide it into cents.
Non fungible assets are those that cannot be divided into smaller pieces in the real world, are unique and are not necessarily interchangeable.
For example, a painting of the Mona Lisa cannot be divided. There is only one authentic painting, which makes it unique and each replica has a different value than the genuine painting.
To tokenize a non-fungible asset, a digital signature is introduced in a secure way that cannot be modified, which proves its authenticity and promotes data protection. The result (the non-fungible tokens) is called NFT.
In business models and digital technologies, we can observe different uses:
To create a token, two points must be taken into account:
Basically, this point consists of defining everything: how it will store data, which data it may or may not store and which are characteristics. To do this, protocols are created.
In this second point, it is essential to know that its protocol or characteristics depend entirely on the blockchain and the programming tools available to it. In other words, the tokenization platforms.
With all of the above in mind, we can see four advantages that tokenization gives both investors and sellers. Let’s take a quick look at them:
So much for our tour.
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