The Future of Tokenization

An introduction of the views from Hyperblock Capital and how we see the market move the coming years.

Blockchain technology is likely the most innovative invention of the 21st century. A technology that has disrupted the traditional method of operation in various sectors, and still has the potential of replacing the normal modus operandi of virtually all facets of financial activities.

With the decentralized nature of blockchain technology which allows it to guarantee the security of financial transactions, and its feature of eliminating third parties in any financial transaction, blockchain technology has the potential of disrupting virtually every sector of the economy.

And with this wave of blockchain revolution in different sectors of the economy, a new concept has risen: tokenization. Tokenization is a process when traditional assets stored by conventional means are digitized or converted into a virtual token on a blockchain platform.

A token is what represents that particular asset; that is, it stands in the place of the asset. After an asset is tokenized, the token is what is passed around on the blockchain network when transactions involving that asset are to be conducted.

As it stands, there is great need for efficient and transparent methods for fund transfer and borderless transactions, the traditional means of financial services is limited in handling global financial transactions.

The current system of financial services is centralized and, as a result, is not transparent. Apart from that, it has a rather slow transaction processing speed (with a lengthy verification window), and always involves a third party (more like, central authority) to oversee transactions between the parties involved. This makes the process unnecessarily long, tedious, and inefficient. Tokenization of financial services using blockchain technology will solve all of that.

Real world assets are illiquid, and tokenization is the tool to help create liquidity for real life assets. These illiquid assets are difficult to physically divide or transfer. Currently, there are $256 trillion worth of real life assets, and most of these assets can only be represented on paper.

This system too had its own limitations, as it failed to solve fundamental problems that are associated with the trading of real life assets, with complex paper works and time consuming bureaucracy surrounding the trading of these paper based assets.

However, with the creation of blockchain technology, the world can now look to it for help in solving these fundamental problems. With the tokenization of real world assets, interested parties are now able to purchase fractions of a large real world asset on a blockchain platform (as opposed to buying it as a whole) by making use of the designated token of that same blockchain platform.

For example, if you owned a real estate asset, you could digitize the papers of that asset and store it on a blockchain, then issue a token representing ownership of that asset. When someone is interested in buying part of the real estate asset, you can send a token representing the value of the investment they are purchasing to them. With that, we can now say that real estate asset has been tokenized.

Some blockchain-based projects allow traditional assets like bonds, real estate properties, equities and commodities to be tokenized. These items are digitized then stored on a blockchain platform, and users are allowed to buy, store and transfer these traditional assets that have become represented by tokens, on that blockchain platform.

We can create exchangeable digital tokens using blockchain technology. With certain conditions in place, blockchain based tokens can be transferred between two parties, but can be owned by just one person.

Bitcoin was the first digital token built on the blockchain platform. With its token BTC, Bitcoin created a buzz in the technology space — and for good reasons.

Apart from real estate, tokenization of assets using blockchain technology is poised to disrupt lots of industries, like the financial services industry, healthcare, online gaming, online gambling and freelance marketplaces.

Industries to Get Disrupted (Positively) By Blockchain Technology and Tokenization

Tokenization of assets using blockchain technology has positively impacted different sectors of the world’s economies, helping to liquidize previously illiquid assets, and making real world assets easily transferrable and sharable. A lot of cryptocurrencies have been developed to serve various sectors. Some of these industries are:

1. Online Gaming:

The online gaming industry is a very large one, with an over $109 billion USD valuation. Blockchain technology and tokenization has the potential to create unimaginable possibilities for games and the gamers.

Tokenization with blockchain technology aims to be the change in the online gaming industry, revolutionizing the way gamers collaborate, compete and negotiate on the online gaming sphere.

By transforming in-game items and currency into tokens, gaming assets can help gamers make some money doing what they love. Second Life, an online virtual reality game created by Linden labs was one of the first online gaming platforms that started issuing virtual currencies that can be used on the platform, and can even be exchanged in real life.

Imagine playing a game to the last stage and amassing a huge reward, but that reward is only useful on the gaming platform, but useless in the real world. Online gaming tokenization will change all that. Blockchain-based gaming platforms such as Cryptokitties allow you to collect and exchange digital cats that hold real life value in fiat currency.

Another gaming platform, Spells Of Genesis, which is a card game, is based on blockchain technology. Blockchain technology allows you tokenize cards, and you can transfer those cards on the blockchain platform. With an in-built wallet function, the game can track the transactions and ownership of these cards.

Another blockchain project that plans to tokenize the online gaming industry is Dmarket. Dmarket wants to incorporate already existing games, and allowing gaming items to be transferred and traded on their blockchain platform.

By creating a decentralized market for in-game items using blockchain tech and smart contracts, the gaming industry is surely getting a facelift. You can amass lots of prizes by playing games online, and you can trade those prizes on blockchain platforms, and make real life currency.

2. Online Gambling

Another industry that will feel the impact of tokenization is the online gambling industry. The online gambling industry and tokenization will likely work together in the future, with countries like Malta planning to legalize the use of Bitcoin and other altcoins in online casinos.

Using tokens as the form of payment, or an alternative payment system is a solution being considered by a lot of online casinos. With the implementation of blockchain technology in conjunction with online gambling, the industry will become decentralized and a more efficient industry.

A user can gamble anonymously, without having to present legal documents before they can gamble online. You can participate with smaller fees, and withdraw earnings instantly to your blockchain wallet, reducing the risk of players to lose money completely.

Tokenization of online gambling makes accessibility easier, new gamblers can easily get access to gambling platforms and explore all the possibilities, in a highly decentralized gambling ecosystem.

One blockchain project that is specifically built for online gambling is Gamblica. This unique gambling platform aims to revolutionize online gambling, by making it transparent, safe and enjoyable to the gamblers.

3. Peer to Peer Marketplaces

Peer to peer market places are going to feel the impact of blockchain technology in a very huge and revolutionary way. The most popular global marketplaces like Amazon and EBay already have some sort of blockchain project running where you can even purchase goods using cryptocurrencies like Bitcoin or Ethereum.

A centralized marketplace has its shortcomings, with almost no transparency, a middleman always involved, and limitations to the transaction processing speed. Also, transactions processed on centralized marketplaces are not scalable, which means the system might easily crash when there is a large volume of transactions to be processed, leading to loss of data. However, a tokenized marketplace removes third parties, transactions are traceable on the distributed blockchain ledger, making transactions more transparent and secure.

Online marketplaces sometimes are filled with scams, but in a blockchain based marketplace, the implementation of smart contracts allows for a trustless means of transaction, the smart contract will give both parties involved in a transaction confidence of a legitimate transaction.

Platforms like Offexchange and Pareto are implementing blockchain technology into peer to peer marketplaces. Offexchange gives you the opportunity to exchange your local currency into cryptocurrency, then put up advertisement on the platform telling people to buy from you at the best possible price.

Pareto is a content creation marketplace, where you can publish articles or data regarding a digital currency and get paid in tokens for your job.

4. Microtransactions

“Microtransaction” is a financial term which means the purchase of virtual goods online using micropayments. A micropayment is a very small transaction made online.

One of the best platforms for the tokenization of microtransactions is IOTA. IOTA, which supports transactions for IoT devices, makes transactions between said devices easier and faster. IOTA doesn’t implement blockchain technology, but uses a different concept known as Tangle as its distributed ledger.

IOTA has no blocks, mining or transaction fees, which makes it best suited for handling micro and even nanotransactions.

5. Money Transfer and Payment Platforms

The industry most impacted by Blockchain technology is the financial services industry. Blockchain has revolutionized the way money is transferred, and how payments are made, even online.

With the need for a fast, transparent, and secure means for global funds transfer, and the need to process large amount of funds in a short space of time, the traditional banking methods just can’t cut it. That’s why blockchain technology is highly adopted by a lot of companies in this sector.

With a project like Stellar, which allows for ease of cross-border funds transfer on its blockchain network, a user can easily transfer large amounts of funds from, say Europe to someone in Asia, and it will be done in a matter of minutes.

The funds are tokenized, and then transferred on the network, the network at the same time converts the currencies at the best exchange rate possible. All this is done with transparency, a high level of security and a much faster processing speed than conventional banking methods.

6. Identity Verification

Blockchain technology and tokenization have also made an impact in the identity verification industry. Customer identification for online users is required before you can use most services online. Some of these websites require you to submit some highly-sensitive details, sometimes credit card information.

These details are compiled and stored on centralized servers, which are targets for hackers and other cybercriminals, and even in-house sabotage. Consumer identity is no longer secure with the centralized means of storing personal and highly-sensitive data.

Blockchain technology and tokenization can solve all that. In a decentralized system, customers can verify their identity on a platform that doesn’t store their data in a central location, making their information secured. Since the information is no longer in a central location but rather divided

In conclusion, tokenization of traditional assets using blockchain technology is set to revolutionize a lot of industries. The huge potential of this concept, which a lot of companies are slowly beginning to realize, is set to completely change how we handle the storage and transfer of traditional assets.

About Hyperblock Capital:
The Hyperblock Capital fund is a closed, tokenized venture capital fund designed to function as a syndicate for investors looking to gain exposure to the earliest stage of blockchain investing.

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