What is Tokenization? Digitize All Your Assets

What is Tokenization?

Tokenization is the process of digitalization into digital assets.

Let’s say you have a farm worth 1 million dollars. Your farm has a large barn, cows, rabbits, a hedgehog. Suddenly you’re in desperate need of money, you can sell the farm the traditional way – fill in the papers, wait for an offer, close the deal, etc. But what if you need less than $ 1 million and still want to keep the majority of the farm for yourself?
Imagine printing 1 million tokens under the symbol “COWS”, for example, where each “COW” is worth 1% of your assets – or any other amount, as long as each token represents the most share. of the base asset (in this case, your farm).

Technically, you will develop an algorithm that will be deployed as a smart contract on the blockchain. This algorithm determines all the features of your future token: value, quantity, par value, name, etc.

So how do we actually get those COW tokens so that they can be freely bought and sold on different exchanges? For this, we need a platform that supports smart contracts. Ethereum will be the most popular choice. Instead of going into the technical details on how to create tokens and going too far from the topic, let’s assume that you’ll need a smart contract template, text editor, and Ethereum wallet address.

And so COW tokens are in circulation now! They are technically ERC-20 tokens – essentially meaning they are powered by the Ethereum blockchain. Now that they enter the market, their value can either increase or decrease according to demand.

Now see how blockchain can allow us to tokenize things? We took a farm and created a digital representation that exists on the blockchain. In short, this farm is now a tokenized asset.

Read more: The future of digital bank with the development of blockchain technology.

Is this a new concept?

Not really, but it has a more modern “surprise”.

Of course, the concept of “securitization” – securitization (as a more general form of tokenization) existed long before the advent of cryptocurrency.

Securitization is the process of pooling various types of contractual liabilities – such as mortgage, auto loan or credit card debt – and selling their associated cash flows to third-party investors in securities, Can be described as a bond, security through or collateralized debt obligation (CDO).

Do you remember the 2008 financial crisis? Think of those CDOs, which eventually become the foundation of a default microbiome, like the boxes that collect monthly payments from multiple Wall Street mortgages. Technically, they are a class of securities known as structured asset-based securities (ABS).

So the key idea here is to turn different things into stocks – and we’ve seen how this works before.

Source: tapchibitcoin.io