It is hard to argue that we are already living in a digitized economy. We use mobile applications to send/receive transactions, pay bills, and even buy groceries.
However!
The truth is that there are still vast areas in the financial economy that remain restrained by analogue. Some sites have proven easier to digitize than others, while some need outlined policies.
That’s where the concept of Tokenization comes into the frame.
Like traditional security, a security token is like a financial instrument representing the owner’s interest. The only difference between traditional security and online security is that it has been created digitally and tokenized to unlock the power of Blockchain.
If you have used the pirate bay, you know that it works on a P2P network. It is a network connection to all the users, and any user can become a client and server.
A similar concept is applied to Blockchain with a twist. Every user becomes a node and can see what’s happening in the network.
To better understand what Tokenization is and how it helps investors keep reading.
What Is Tokenization?
If you are thinking of investing in digital assets, it is important that you understand what Tokenization is and how it differs from securitization.
Tokenization is the process of converting rights or ownership of traditional assets and converting it to digital assets in the blockchain.
Tokenization can be applied to regulated financial instruments like bonds, real estate, precious metals, and even tokenization of the Copyrights.
The benefits of tokenization are quite apparent for the assets traded not electronically.
Benefits Of Tokenization
As we know, Blockchain technology connects every user and makes all the operations efficient and effective. This helps in reducing human errors. This ultimately reduces the cost as well.
But, this is not where all the benefits end. Tokenization also increases the liquidity of traditional liquids. For investors, this can be an opportunity to democratize and diversify one’s portfolios.
While the list of benefits is quite long, we have handpicked the most prominent that leverage what Blockchain technology promises.
1. Better Compliance
You would be surprised to know that the financial industry invests more than $180 billion in compliance. But with the Blockchain in the frame, the risk of error decreases, making the process much cheaper and easier to manage.
2. Reduced Cost
With the traditional securities, there were just too many processes to consider. It not only took time to complete but also made the process more expensive with all the employees working on the process. However, with Blockchain, you get automation, transparent record-keeping, and reliance on public interest, leading to cost reduction.
3. Improved Liquidity
There are almost $4 trillion locked inequity and a couple of trillions in real estate. These assets remain locked up. However, with tokenization, it opens doors for investors to invest and trade in illiquid or non-fractionable assets.
4. Increased Efficiency
The one thing that Tokenization gives you is that you no longer have to deal with any middle man. This significantly makes the process faster, reduces the settlement time, and saves costs for issuances and other processes.
5. Facilitate Innovation
Blockchain helps the investors with the programmable contracts and shared ledger that can create fractionalized real estate, dynamic ETF, and other unmanageable offerings.
6. Increased Transparency
While everything is all OK, there is one thing we are missing about Blockchain – It’s Transparency. Blockchain has always been known for its transparency. It provides one golden source of truth for all. This makes keeping tabs on what’s happening in the network fairly easy and simple.
What The Future Looks Like?
After reading this article, one thing is clear – Now is the time to act!
The benefits here clearly show that Tokenization is not only here to stay, but with the right approach can have a major disruptive influence over the financial spectrum.
To know more about tokenization, contact us. We would like to hold a valuable discussion on tokenization and how it can disrupt the future positively.
