The term tokenization isn’t strange in the cryptocurrency world although not so popular. It is however important for you to know that tokens are often known as coins and they power every blockchain platform. Tokens basically describe any asset that’s tradable, it could be commodities, loyalty points or other cryptocurrencies.
What is Tokenization
Tokenization refers to converting the rights to an asset into a digital token on a blockchain. There is great interest by financial intermediaries and technologists around the world in figuring out how to move real-world assets onto blockchains to gain the advantages of Bitcoin while keeping the characteristics of the asset. Let’s assume that a fish farmer wants to produce fishes worth $50,000. Tokenization can convert the fishes to 50,000 tokens or more. Therefore each token represents a share in the asset (fishes). So, when the token is issued on a platform supporting smart contracts, the tokens can be bought freely and sold on different exchanges. Buying one token gives you a percentage ownership in the asset. This means that an asset can be tokenized and a digital representation of it can be created on the blockchain. With tokenization, any business can sell anything to raise money. It creates a world where liquidation is unrestricted by physical assets or cash.
Benefit Of Tokenization
Tokenization eliminates the need for intermediaries in the execution of transactions. Businesses and individuals can successfully execute their contracts without the extra expenses of a middleman. Transactions are facilitated on a public ledger that records and validates transactions. So, there is no need for intermediaries. There is also the fact that tokenization reduces the risks of double spending and has a database that shows the complete history of ownership and transaction.
When a token is created by a company, it becomes an atomic unit of value exchange. This unit of value exchange maybe within a particular market and result in a transaction between the buyer and the seller. For instance, if a biscuit producing firm decides to tokenize their assets for whatever reason, that unit of value (token) becomes a transactional economy between buyers and sellers. A token also consists of features that allow users to earn value and to spend it on services that are internal to the inherent ecosystem. Tokens offer businesses a much lower barrier for processing end-to-end transactions within a particular market.
Other Usage of Tokens
A token could also be used on a particular blockchain infrastructure to perform a specific function, running a smart contract, paying for a security deposit, or just as usage fees. It could also be used as an incentive to reward users for joining a network or contacting others to it.
Entrepreneurs are coming up with different creative ways they can put tokens to use. But then it has an implication for every industry. From the Agricultural sector to the real estate sector. For instance, a blockchain based company Propy is using the blockchain to connect property owners and buyers across the globe.
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