As emerging technologies become more accepted and established throughout society, old problems become solved and new opportunities start to arise. Blockchain has been around for over a decade and has been popularized mostly through its association with cryptocurrencies. Offering numerous benefits, new applications of blockchain are constantly being researched in the hopes of disrupting industries. One of these applications is that of tokenization – specifically, the tokenization of assets.
Firstly, what is asset tokenization? Effectively, it is the taking of a physical asset and converting it into a digital medium which is represented as a token on the blockchain. Each token also contains the associated ownership rights of the asset. For example, a house worth R1 million can be converted into 1 million tokens, each token representing 0,000001% ownership of the house.
Benefits
As one can imagine, this offers numerous benefits to both sellers and investors:
- Transparency
- The token holder’s rights, and legal responsibilities can be embedded within the token, as well as a record of ownership.
- Liquidity
- Tokenized assets allow for the automated transfer of ownership while maintaining compliance as well as reduced complexity and cost. Combining this offers a definite improvement in liquidity.
- Accessibility
- Tokenization has opened investing to a much broader audience thanks to the lower minimum investments and lower investment periods. The divisibility of tokens allows for extremely small percentages of assets to be purchased at a time if wanted.
Though the benefits are many, there are definitely still barriers and challenges ahead before this becomes widely used. The main challenge falls under the regulation, as seen as a challenge with many other emerging technologies. As blockchain is still relatively new, it is still quite unregulated. Depending on the regulation laws that are to be put in place, many of the benefits in terms of liquidity and accessibility could be undermined.
Blockchain and asset tokenization are offering exciting opportunities going forward. If you would like to know more about this, please feel free to contact our offices.