Tokenisation as a means to redefine wealth
In the blockchain age, the key technological revolution in money and wealth is ‘tokenization’.
In 2008 Satoshi Nakamoto posted a short technical description of a new kind of digital currency called bitcoin. Because the technology that makes bitcoin work relies on cryptography, bitcoin and its progeny have become known as cryptocurrencies.
Creating new forms of money has been tried before but two things make bitcoin and other cryptocurrencies different from previous attempts, go some way in accounting for its apparent importance. One is that the system has decentralized governance. It requires no central authority, be it a bank or a government, to create the money, transfer it or keep it safe. This is all done by individuals in an open, public network. The other is that transfers are immutable and relatively fast. That means that blockchain-based currencies have some attributes of cash: Transferring value on a blockchain is like a digital bearer asset, for all intents and purposes the same as handing over physical coins and notes with no need for intermediaries to ‘settle’ transactions. Digital cash can be easily and immediately sent anywhere in the world. And, thanks to smart contracts , it can be taught to obey our instructions, and so become ‘programmable money’.
Furthermore, while bitcoin and other cryptocurrencies are becoming more mainstream, blockchain applications beyond cryptocurrencies could offer significantly wider ranging benefits. For starters, this is because, as people quickly realized, blockchains can be used for much more than just currencies. Anything that can be represented on a blockchain by a unique, unambiguous digital identifier — a ‘token’ — can easily be made into a smart asset too. It is this tokenization which offers financial possibilities ‘beyond money’, with
possibilities for tokens to represent anything that has been, and could be, considered as ‘wealth’.
The process of tokenization will continue to have a profound effect on how we handle assets in the digital economy and what we think of money and wealth.
It is already changing how we handle traditional, physical assets, especially illiquid assets of high value. For example, we have recently seen the appearance of blockchain-based platforms to tokenize expensive, illiquid physical assets like real estate, precious stones, fine wine and art.
Tokenization has great advantages. Once an asset is tokenized on blockchain, it has an immutable digital record, one that can include where it came from and every single time it has changed hands. 9 Having such an unbroken chain of origination and custody makes these assets easy to account for and validate. This is important, because for many such assets provenance and authenticity are important criteria of value (“Is this a real Warhol?” “Are
we sure these aren’t blood diamonds?”).
Once an asset is tokenized on a blockchain, it is also possible to add metadata to it. This can be descriptions, images, videos, reviews, opinions, insurance policies, almost anything of relevance. This makes the system not only transactional, but also the beginning of a highly secure, highly informative network.
Such advances greatly facilitate buying and selling assets online, whether in dedicated marketplaces or directly between individuals. Blockchain can also help right wrongs. For example, efforts to put land titles on blockchains are helping to protect legitimate property owners by making it extremely difficult to illegally tamper with records of ownership.
It is also possible to tokenize intangible assets, likeintellectual property. Today we have projects to tokenize artistic creations, from music and writing to fine arts, videos and films. This helps creators better control access, manage distribution, fight fraud and get paid, in many cases transferring wealth back from distributors to originators. And it could also offer a way for wealth management professionals to develop a clearer view of their clients’ total wealth.
Tokenization is also making new kinds of assets possible. There are now tokens for things such as the rights to online computational power, online data storage space or votes in online prediction markets. By making these and other intangibles tradeable and accountable, tokens can in effect become what we commonly call ‘assets’ in their own right, and insomuch can assume a value.
Such developments can be extended to things that are not traditionally considered assets at all. There are tokens, for example, that represent claims on people’s future time or labor. This opens up new possibilities for monetization, and opens up new potential for wealth creation.
It is theoretically possible to tokenize your social network, your education, the future value of your skills, data-rich information on your purchases, and so on. You could then monetize these digital assets through the value they hold for companies seeking to sell goods and services to people just like you, and then sell your new ‘assets’ to interested buyers. And if such exchanges scale up, new ecosystems will likely emerge to facilitate and govern these new markets.
Of course, this was all technically possible before without blockchain or tokenization. It just wasn’t practical, standardized or reasonably scalable.
Despite the progress and promising attributes outlined,there remain hurdles for widespread use, such as legal and regulatory clarity and scaled adoption of tokenized offerings.
Enabling securitization of any kind of asset in a far cheaper and simpler way than has been available before — a way that, perhaps counter intuitively, offers higher security by not relying on intermediaries — is a step change in the nature of the digital economy.