What is Tokenization?

Tokenization is the concept, simply put, of converting rights to an asset into digital tokens. By tokenizing assets, we now have a digital representation of a real-world asset on a blockchain.t

So what exactly is tokenization and why are we doing it?

When something is tokenized, sensitive data is replaced with unique identification symbols that retain all the essential information about the data, without compromising its security. The tokenization process then means that these ‘real world’ assets are now represented in a digital form — on a Blockchain. Tokenization makes it more difficult for hackers to gain access to data, as compared to the storing of credit card numbers in databases and the exchange of these freely between networks.

Tokenization can therefore, in theory, be used with sensitive data of all kinds including bank transactions, medical records, criminal records, vehicle driver information, loan applications, stock trading and voter registration.

And how does it work?

An example of a traditional, non-tokenized asset transaction is the use of a credit card. In a credit card transaction, the credit card number is sent to the payment processor and stored in the merchant’s POS terminal, or other internal system for later reused. If this credit card use process was a tokenized transaction, the customer’s account number is replaced with a series of randomly generated numbers, which is called the ‘Token’. These tokens can then be passed through the internet or the various networks needed to process the payment, without actual bank details being exposed and stored. The bank account details are held safe in a secure ‘Token Vault’.

Tokenization as an investment process manages a digital asset that provides Investors with access to robust investing strategies on real or crypto assets, providing greater diversification of investment returns. By investing in a wide range of performing assets through tokenisation of property markets, mass adoption of cryptocurrencies becomes feasible.

What are the benefits of Tokenization?

Internal Protection
What we think is one of the main benefits of tokenization — the protection of sensitive information for those connected to a transaction. This includes an organisation, employees, vendors, customers, and suppliers. The protection offered by tokenisation is unparalleled, whether business is conducted online or at a traditional brick and mortar storefront.

Compatibility with other technology
Tokenization not only works with credit cards, but across a significant amount of other technology, including platforms.

Personal Information
A blockchain based platform can use this technology for a broad range of purposes, including protecting personally identifiable data and financial information.

Tokenising a digital asset

The FinTech and PropTech industries are experiencing rapid innovation, particularly in the asset management segment. Some of the drivers of this change are aimed at giving wider access to Investors who consider accountability and transparency a prerequisite to participation in technology advances.

Blockchain technology and tokenization can extend investment opportunities into real assets, and facilitate value transfer and liquidity from the real world to the crypto ecosystem.

Blockchain based real estate investing platforms with a tokenised system, allows for investment into tokenized real estate assets using crypto currencies such as Ether (ETH). When the asset is fully funded, the smart contract issues investors Proof-of-Asset (PoA) tokens, proportionate to the amount they invested.

Security considerations, advantages and challenges of Blockchain

Blockchain-based technology in the real estate industry will be in favour for commercial real estate investors with Security and Utility tokens. The worldwide property market is huge — initial coin offerings (ICOs) will have raised a combined $3.25BN this year, creating the first visible ripple of what could eventually become a multi-trillion industry. Any innovative startup companies have been beginning to adopt cryptocurrency tokens based on blockchain through the ICO capital raising model, and distributing them to token buyers in exchange for making a financial contribution to the project.

These blockchain transactions have an audit-able operating environment with comprehensive log data that can be tested for compliance, providing security through verified transactions, locked contracts on the distributed ledger and a single set of records, that can be viewed by all members.

It has the potential to eliminate reconciliations, duplicate ledgers and disputes over over contract terms in the real estate investment process. Efficiencies are gained since information is automatically continuously updated and intermediaries are removed from the transaction process.