Top 8 Questions About Tokenization For The Product Protocol Project

The concept of tokenization has existed long before the term itself, even long before the first computers. To put it simply, tokenization just refers to the data via an unrelated reference number, just like a case number refers to a criminal investigation, an invoice refers to one or several purchased items or a post ID refers to a random set of data. Meaning, there is no more need for the seller and the buyer to exchange personal data and details, all the necessary info is replaced by a unique encryption — a token.

Right now the Product Protocol platform is actively introducing this tokenization process with no regard to the limits of timezones or state borders, which raises a lot of questions among its clients. In this article Product Protocol will give answers to the most fundamental of these questions:

What’s the difference between tokens and currency (money)?

While more and more people tend to use the word token, it still remains a rather technical term. In practice, a token is the proof of asset ownership, which includes currency. In other words, tokens are a digitized ownership of an asset that can also be used as a means of payment, which equates token exchange or paying for goods, services, etc. with tokens to barter.

What’s the difference between tokens and cryptocurrencies?

Cryptocurrencies are independent digital currencies with several decentralized processes: coin emission, transaction confirmation, data storage, accounting and management (e.g. making update decisions). To trade, own and pay with a cryptocurrency one doesn’t need any special authorization, all users have equal rights to use cryptocurrencies.

Token is a rather broad term, but mainly it is used to describe a whole group of digital assets: digital collectibles, complementary currencies and cryptocurrencies. But to say that all tokens are cryptocurrencies would be wrong, because there are both centralized (managed by a specific organization) and decentralized (managed by a provisional algorithm) tokens, which means they can be under total control or independent. Therefore, only a small subgroup of tokens can be considered cryptocurrencies.

Asset-backed tokens — what are they?

Assets are financial instruments, material or immaterial resources, products or services. Asset-backed tokens are monitored by the accounting system, where they are regulated, stored and issued either by a service provider or the organization that owns the physical assets. Every one of these tokens is always backed by a fixed number of products or services by a ratio of one to one, which is guaranteed by a certain party (trustee). For example, one such token can provide the right to the ownership of 1 kg of construction sand, one theatre ticket, one square meter of real estate or even 1/1000 of a work of art. Depending on whether or not the underlying asset can be considered a security, the token might be called a “security token”.

Is there a difference between owning an asset directly and owning an asset-backed token?

The difference is the physical location of the asset: token-based transfer of ownership does not entail the transportation of the asset, by which the token is backed. For instance, if the owner wants to sell their diamonds, they do not have to spend money to move them from the storage anymore, they can simply sell tokens backed by these assets.

Where can we see tokens used in real life?

Anywhere, really. A coupon for a free haircut can be considered a token, so can a (it’s in the name) subway token. Before the end of the gold standard, US dollar could be considered a token backed by a certain amount of gold.

How can I monetize a tokenization platform?

In the case of the Product Protocol platform one can earn money through payment fees within the system, fees for data gathering and analysis, distribution of profits among outside partner services (insurance, marketing etc.).

What advantages does blockchain provide during tokenization?

• Safe database organization (verification of the integrity and validity of every subsequent system status).
• Point of Failure decentralization (transaction processing via a number of independent servers).
• Reliable audit organization (complete audit of the platform change history).

How to cancel a transaction in the event of errors or attacks?

It is impossible to delete or cancel a transaction within the blockchain ledger. Nevertheless, there are service transactions, which change the current balance (thus correcting results of actions). Both erroneous and corrective transactions are recorded into the history. This is necessary for secure accounting and protection against attacks.