The advent of bitcoin has opened up new possibilities when it comes to the financial landscape. It made it possible to easily divide assets into smaller units representing ownership. This situation provides an incentive to democratize investments in assets that have hitherto been difficult to market, while contributing to fairer markets. Whether it’s images, digital media platforms, real estate, company shares or collectables, everything can be tokenized on a distributed ledger. So what exactly is asset tokenization?
Asset tokenization is a concept referring to the use of smart contracts and blockchain technology to “present” a given property or right to an asset in digital form. Import into the blockchain, you might say.
This process most often involves financial or exchangeable assets, such as shares in companies or amounts of gold. Nevertheless, tokenization can potentially be applied to any item with a monetary value. Tokenization is one of the most promising applications of blockchain technology, also due to the size of the market itself, which can cover virtually all economic activity known to us.
Those familiar with the problem of blockchain oracles know that any situation where a Web3 application needs to communicate with the outside world carries security risks and other difficulties, and asset tokenization that relies on information from outside the blockchain is no exception. In order to fully realize the potential of asset tokenization, blockchain oracles are crucial as markets need reliable information on underlying assets in processes such as token creation, trading, management and much more.
To understand how asset tokenization works and why it matters, let’s go back to the basics of Web3 technology: Smart contracts are cryptographically secured digital contracts created with computer code and stored in a highly secure database called a blockchain. To issue tokens, a developer writes a smart contract on the blockchain that maps positive balances to a series of wallet addresses or smart contracts, along with features that allow users controlling those addresses to add to and subtract from those balances.
Examples of resource tokenization include:
Virtually any enterprise can theoretically take steps towards tokenization, however, some industries are more suitable for this kind of solution. Here are some examples of enterprises that can tokenize:
However, it is worth remembering that the tokenization process involves various regulatory, legal and financial factors, which may vary depending on the jurisdiction. Enterprises interested in tokenization should consult with relevant legal and financial professionals to ensure that they are operating in compliance with applicable regulations.
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