Cryptocurrency tokenization is on the rise worldwide

Inquirer Los Angeles / 09:28 AM June 07, 2021

As cryptocurrency becomes popular, more companies are starting to tokenize. They recognize that the world is steadily adopting bitcoin and other digital currencies. In response, they’re making sure they can accept them as payment.

Let’s start by discussing what tokenization is all about. See how it’s done, why companies are doing it, and what it could do in the future. More importantly, we’ll explain why and how you can start investing in cryptos.

Nowadays, more people see that cryptos are a good investment. That’s why numerous countries and companies want them as payment methods. If you were thinking about investing, this could be the sign that you need to start now!

What is cryptocurrency tokenization?

More people are getting interested in cryptos. This caught the attention of companies and countries. They see that it’s more than a fad.

Take Ethiopia as an example. Its government wants to use the Cardano (ADA) blockchain for education. So it will use the ADA network to track student performance.

Financial institutions see them as a good investment too. For example, Goldman Sachs recently considered bitcoin as a new asset class. Meanwhile, Visa made the first credit card with bitcoin rewards.

Recently, Apple Pay came out as the first data tokenization system. Other companies see it as the next step for cryptocurrency investments.

Tokenization means creating a digital representation of ownership for just about anything. It lets people own stuff completely or partially.

A token will represent its value on a crypto network. Specific ones will allow the owner to do various things with crypto. Here are the types of cryptocurrency tokens:

Security tokens – These represent ownership of certain assets. The investments could be in the real world or a crypto network. The most popular one is Ethereum. It lets you buy NFTs as various forms of art.
Utility tokens – Cryptos are more than just internet money. Many of them have other functions. For example, you need OXT coins to use Orchid VPN.
Governance tokens – Some cryptos let you vote on their development. For instance, XTZ coins let you vote on changes to the Tezos network.

Why are companies tokenizing their products?

Businesses see so many ways to improve with cryptos. They understand how it could open them up to new markets and other opportunities. Here are other reasons why they do it:

Fewer red tape – For example, selling shares the old way needs a lot of mediators. You’ll have to talk to several people and spend so much time and money. If you sell them as tokens, smart contracts let you do away with them.
Raise funds easier – You also won’t need go-betweens to build capital. Instead, people could fund you with cryptos directly.
Buy and sell assets faster – Back then, you’ll have to work with intermediaries to invest. This meant days or weeks of paperwork. Tokens reduce a lot of time for exchanges.
Assets backed by real-world assets – This makes investing in tokens far less risky. In contrast, cryptos are well-known for being risky investments.
Tokens are stable – Other measures could make sure the prices don’t move like the wilder cryptos.

Take real estate tokenization as an example. It’s the hottest new trend for the market. More owners are making sure people could buy their properties with cryptos.

Meanwhile, real estate crowdfunding has also become popular lately. It lets more people invest. Back then, they needed thousands of dollars to invest. Now, they just need around $500.

However, you only help sell or rent the property. You don’t get ownership. Tokenization lets you buy parts of the property or the entire thing.

How does cryptocurrency tokenization work?

It involves matching the real-world transfer methods with the ones on crypto networks. This is easier said than done, though. You’ll need experts in crypto and a specific field.

Again, let’s look at real estate. First, you need someone who knows the processes in property investment. Then, they’ll work with a crypto expert to make a similar system for the network.

What’s more, you need to consider other factors in tokenizing an asset. For example, these are the questions asset owners ask themselves before doing it:

Can you put the rights to an asset on a crypto network? – If you tokenize a home, owning it and the token should be the same. The law should allow you to do this.
Can you legally transfer ownership online? – Owning tokens means owning the property. So if you send it to someone else, it should count as transferring ownership.
Could I exchange my tokens for “value”? – For example, a home could be worth a million dollars. Therefore, the token should have a similar value.
Do you get a claim or ownership from tokens? – Having a claim means you earn when the asset makes money. Meanwhile, ownership means it is yours. Claim and ownership are separate. The token should be clear on the rights it gives.

Challenges with tokenization

This process is relatively new, so it has a lot of issues. Still, we may eventually take care of these. Here are some of the problems with tokenization:

You need third parties to verify exchanges – Smart contracts can speed up transactions but not verify them. So you’ll need a third party to check. However, smart contracts are about not having middlemen!
Numerous factors could affect transactions – So many things could mess with the exchanges. You can’t write all that could happen on the smart contracts.
The crypto networks might not cover changes of ownership – Some may sell the token to one person then the asset to another. Also, it might be hard to make sure the investment is legit.
You shouldn’t tokenize some things – Let’s say you tokenize water. Only those with tokens will get a supply, leaving others without a drink. Likewise, it’s not a good idea to tokenize a birth certificate too.

What are tokenization platforms?

This doesn’t mean tokens are a lost cause. On the contrary, as we adopt cryptos further, we’ll get laws for these financial products. This could solve the issues we talked about earlier.

They don’t even stop the tokenization trend. On the contrary, more companies are pushing through with it. What’s more, a new industry came out of it: tokenization platforms.

These sites help others make tokens. They cover the details for you, from making smart contracts to trading tokens. Here’s how the platforms could help you:

These help you manage assets with digital wallets and debit cards.
They could make smart contracts for your tokens.
The platform could help you exchange tokens.
They help you access other assets with tokens.
These follow the law.

Does this mean I should invest?

If you’re interested in tokenization, you may want to wait a bit. This is because it still has issues that need fixing. Yet, this means it’s best to buy cryptocurrencies as soon as you can.

They’re not just a fad anymore. The largest companies now invest in bitcoin. They see the future of blockchain technology and want to get into them quickly.

What’s more, people don’t just go for the most popular cryptocurrency anymore. Instead, they know altcoins like Ripple (XRP) and even Dogecoin (DOGE)!

It’s getting easier to invest in cryptos. Soon, they will change the world. So it’s best to join this trend early. Good thing there are exchange platforms like Coinbase and Binance!

They make trading cryptocurrencies easier. Moreover, making online brokerage accounts on them is fast. Here’s the gist of how it works:

Create an account.
Later, you’ll get an email to verify your account. Follow the instructions in them.
Link your bank account, credit card, or debit card.
Choose your coin. Check the price before buying. You’ll see it on the page.
Confirm the purchase. You’ll see the coins on your account in seconds.

The platforms have mobile apps. Download them to check your coins easily. Also, they have other features. Please check your chosen site for more details.

Final thoughts

Cryptos pay off in the long term. As more people adopt them, their prices will increase. It’s already happening as more companies make tokens from assets.

That’s why you should invest soon. However, you must understand cryptos first. Learn how they work. Check factors like market capitalization and price to find the best coins.

Don’t invest money you’re not willing to lose. That’s a poor personal finance move. Instead, learn how to handle money better. This could help you invest in the long run.

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Learn more about cryptocurrency tokenization

How do you tokenize an asset?

You need to have a way of exchanging them using cryptos. Some websites could help you do this. Still, you should check their services first.

What are the benefits of tokenization?

They make buying and selling assets easier and faster. You won’t have to take weeks or months to do it. The networks do the middlemen’s jobs in less time!

Is tokenization the future?

We may soon see more assets with tokens. Although there are issues, other changes may solve them. For example, we may see more laws covering tokenized assets.

Disclaimer: This article is the author’s personal opinion, which may differ from the “official” statements or facts. All writers’ opinions are their own and do not constitute financial advice in any way whatsoever. Nothing published by Inquirer.net constitutes an investment recommendation, nor should any data or content published by Inquirer.net be relied upon for any investment activities.

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