The beginning of Bitcoin and other cryptocurrencies has changed how people invest. Asset movement, issuance, management, as well as transactions are gearing up to better potential. Blockchain is not only the technology behind cryptocurrencies, but also many other solutions.
Thanks to the blockchain, asset owners now have more flexibility in controlling their asset fragmentation. It is hard to break down the physical assets into chunks. But what if the investors can split the fractional ownership?The game is changing now thanks to blockchain technology and its solutions.
Blockchain solutions have made it possible for illiquid conventional assets to be more liquid. The wide array of solutions can be relevant to many forms of assets, including paintings, digital media platforms, real estate, company shares, arts, collectibles, patents, and many more. All of this data can be tokenized into the distributed ledger. With the blockchain, asset tokenization has been much easier than before.
What is asset tokenization?
Asset tokenization is the conversion process from particular assets to digital tokens on a blockchain. These tokens will represent digital or physical assets. Once the assets are tokenized on the blockchain, the users will be able to proclaim the ownership of the assets and modify them. The blockchain allows users to purchase tokens that represent a certain amount or number of assets. There is no single authority who can tamper or modify the ownership of the assets. The process is immutable.
For instance, if you have a property which is worth 10,000 dollars, then the asset backed nft solution will convert your ownership into 10,000 tokens. Each token represents a tiny percentage of the property.
You will issue the tokens on a public distributed ledger to allow people to purchase and sell the tokens in different exchanges. When someone purchases a token, they will buy a small percentage of the ownership in the asset. Ledger technologies are irreversible. That means there is no third party who can modify or change the ownership of the investor.
How it works
Not all assets are qualified for human asset tokeni. In most cases, tokenizing specific assets directly with their market value will be simple and straightforward.These particular assets can be antiques, artwork, and others. But when it comes to tokenizing real estate, it will be different. One will need to bring professional auditors to conduct the valuation of the assets.
Since folks are moving to a decentralized economy, new opportunities are opening up to everyone who wants to embrace them. And it is happening right now.
Central banks have procured a lot of CBDC projects.
Many business models (regardless of their industry differences) have come up with representations of their products or services in the form of tokens on a blockchain like Ethereum.
According to the experts, this movement has successfully unlocked trillions of euros of illiquid assets, giving benefits to the sole owners of the assets. Tokenization has changed the revenue stream methods at the roots. More convinced people are finding this new method of investment and crowdfunding to be convenient.
The Benefits of Asset Tokenization
So, what does asset tokenization offer your business? What are the advantages? Here are the benefits of asset backed tokenization.
Secure and reliable asset management.
The asets are securely owned by the rightful owners. The transparency of the management of the assets is overpowering the conventional method of asset management. It wins everything, from creation to settlement, legal rights, and transaction traceability.
Speedy and cost-effective transactions
The products of tokenized asset offering are more liquid. But that’s not it all. The automated exchanges streamline every single process so that the owners of the assets do not need to wait for a long time to manage their assets well.
This can also reduce the friction of the transactions and save more money in the process.
Few to none intermediaries
Consider how much money you’ll need to spend to pay multiple asset management intermediaries.There are a lot of intermediaries which in turn make your asset management more expensive, such as brokerage, registrats, inspetors, middlemen, banking, agents, and so on. The process will be much more cost-effective due to the loss of the intermediaries.
You can eliminate some of the unnecessary intermediaries.
Fractional ownership
We have mentioned it before. Or, in other words, this solution offers the effective divisibility to split any form of asset into virtual shares in the form of tokens. With this nature of the blockchain, it is highly possible to make the market more liquid. It was impossible back then. But now we have seen these types of solutions everywhere.
Automatic workflow
Since there are no intermediaries, the roles are replaced by smart contracts. Most of the actions are governed automatically using smart contracts. This software is autonomous for exchanging the assets, including the tokens.
Challenges of asset tokenization
Asset tokenization is not patently standardized. There are a lot of methods and approaches that can be used by the creators to procure the asset tokenization. There has been an exponential increase in interest in digital asset tokenization. However, the interested parties proceed with much caution. There are still some underlying risks which must be weighed by these services.
One of the most concerning factors is the absence of official regulations between cross-borders and different jurisdictions. These create loopholes which can be used by people who have ill intentions. To prevent these loopholes and mishaps from happening, all of the involved parties must coordinate to create a legal framework that covers all of the relevant components of digital asset management. That includes the crucial variables like laws, regulations, taxation, accounting, financial reports, and many more.
The absence of a set of standards can also pose a huge problem. Without common ground frameworks and specifications, it can expose investors to asset management flaws.
For further information about the benefits and challenges of digital asset tokenization, reach out to INC4 experts now for inquiries or questions.
