Tokenization - Take your business to the next level
Certainly everyone who has delved into the blockchain industry has come across the concept of tokenization. Due to the solution it offers to us, the digitization of business is becoming more and more often chosen by entrepreneurs who follow new trends. This is not only a great way to finance an enterprise, but also a number of tools to automate and simplify many processes. In this article, you’ll learn about the three simplest forms of tokenization using three examples.
However, if you came across this article without first familiarizing yourself with the basics of blockchain technology, then you should read the following article. Without this, it will be harder for you to understand the mechanisms used in the process of business digitization:
Tokenization covers all processes aimed at transforming a business from a traditional model to a digital one. First of all, it is the transfer of the value of a given project to a digital medium, which is a token. There are a number of advantages associated with this solution, and the main one is transparency and credibility. The register and history of a given asset is public and each owner can view it at any time. Thanks to this, there is no room for manipulation or unfair practices.
Tokenization as a method of financing
Obtaining financing is the basic option that tokenization gives us. Issuing your own token may not always involve using them to store sensitive data or operate complex processes. It can be simply an improved form of raising capital, which is allocated for specific purposes related to starting a new venture. Depending on the type of tokens, the entrepreneur can decide on their purpose.
We can compare STO tokens (Security tokens) to securities. which are legally secured and their value is based on specific assets (shares, property rights, etc.). Security tokens are perfectly used wherever there is a need to establish clear assumptions and conditions, and to distribute profits. An example is the real estate market. STO tokens allow companies to issue their “shares” which was difficult to achieve before. To go public, you have to meet a lot of conditions and incur appropriate costs. In the case of tokenization, the issue of shares is cheap and simple.
On the other hand, we have Utility tokens, which are intended to acquire the value offered by a given venture. They can be used to pay for services, buy goods, and in some cases decide on the future of the project by voting. By issuing utility tokens, the company gains capital for development, and users buy them in order to use it to take advantage of this company’s offer. If the project’s development potential is large, investors see it as their chance and buy tokens with a view to increasing their value. In this case, there is also the speculative nature of the investment. Utility tokens also work great in crowdfunding campaigns, where the founders pre-sell their services.
Imagine that there is no company in the whole city that provides physiotherapy services, and the demand for this type of service is strongly noticeable. To start this venture, capital is needed, and a person who specializes in this field has a problem with obtaining it. The financial side of tokenization comes to our aid. The entrepreneur can create his own token, which he will then issue in exchange for traditional currencies to interested persons.
Token buyers can be encouraged by various types of benefits such as vouchers for physiotherapy services, advertising within the premises or dividends from the company’s revenues. Depending on the type of undertaking, the benefits, the number and form of benefits will be very different. The only bonding element will be the token for which these benefits can be obtained.
A way to identify unique assets
In addition to financial aspects, the technology behind tokenization allows us a number of other possibilities. Thanks to the use of blockchain, we receive a transparent register in which each entry is unique and is not subject to counterfeiting.
This finds its application wherever it is necessary to verify the accuracy of data – e.g. when recording collector’s items. In this case, there is a high risk of counterfeiting or manipulation of historical data that relates to changes of owners or previous valuations. Blockchain technology allows giving objects a unique number, keeping records and saving data that can be viewed at any time without fear of being manipulated.
Real estate tokenization
Investing in real estate is characterized by a high entry barrier. Tokenization lowers entry barriers to the market, allowing easier division of shares in assets into a broader group of investors, democratizing access to them. Ownership can be securely managed by a digital member register saved in blockchain. Smartcontracts or intelligent contracts automate certain processes such as the distribution of investment returns, checking the votes of each investor. Smartcontracts also allow you to configure the structure of fees and benefits for various groups of investors.
Tokenization also allows for quick and easy liquidation of assets, which is impossible in the case of traditional investment in real estate. Everything is done in full compliance with the law
The above examples show only a narrow range of tokenization applications. There are many more and we have certainly not yet discovered all of them.