The word tokenization may not be as popular as bitcoin, but it is steadily becoming a trend for various industries. To be sure, every blockchain platform is powered by tokens, often known as “coins”. Bitcoin in that regard is a token – or coin, just as Ethereum, dash, Remit or Litecoin and any cryptocurrency that function over a blockchain.
Bitcoin’s popularity comes from it being used as money, whereas tokens in general represent far more than medium of exchange. Every other digital currency does not function like bitcoin. Tokens can describe basically any assets that are tradable, from commodities to loyalty points to even other cryptocurrencies.
Tokenization therefore refers to a method that converts rights to an asset into a digital token.
In simple explanation, imagine you own a N500, 000 land at Mowe and you want to raise money. Tokenization can break down the price for apartment into 500,000 tokens, meaning that each token represents a 0.0005% share of the underlying asset. That token is issued on a blockchain platform, for instance Ethereum, to allow people to freely buy and sell on different exchanges. When a person buys one token of your 500,000 tokens, it means they actually own 0.0005 percent of your asset.
You can also add up your asset to maybe $1 million. You can then break that amount into units of coins. For instance, you can create 1000 coins or tokens. Each will be worth $1000. Tokenization represents a world where as a business you can sell anything to raise money.
One expert describes it thus, “The tokenization of everything imagines a world where anything can be traded. Your liquidity is not restricted by cash or concrete assets. Instead, it can include anything you won, and maybe even your time.”
The benefit for tokenization lies in the specifications of blockchain. First, it eliminates the need for third parties or intermediaries to execute transactions. Hence, individuals and businesses can successfully execute their contracts and save the cost of hiring a broker or middleman.
Similar to the first, is that there is also no need for intermediaries to keep the record of transactions and facilitate them because the transactions are recorded on the ledger. Blockchain by nature is a public ledger that records and validates all transactions chronologically. Hence, every transaction on the technology is recorded in the public ledger.
Third, tokenization reduces the risks of double spending. Once anyone makes payment it is recorded for all to see.
Fourth, it has a database that shows the complete history of ownership. In other words, being just recording the amount of coins individuals bought, the history of every one that bought a piece of your asset, are also recorded and verified. This forecloses the likelihood of single point failures and unresponsive servers as data stored on blockchain cannot be erase, it is transparent and allows for integrating principles of management into the assets themselves.
Tokenization has implication for every industry. For instance, in the commodities market in Nigeria one company called Binkabi is already doing something along the line of commodity tokenization.
Commodity tokenization is the process of putting commodities on the blockchain.
At a recent Blockchain Conference organised by PricewaterhouseCoopers (PwC), Binkabi announced that it is introducing a product it referred to as Barter Block.
Barter Block is a marketplace for deal identification and price discovery. The product is powered by BKB token on blockchain.
“Binkabi is in active discussion with a major agribusiness group in Africa about the creation of a commodity exchange that would trade tokenized warehouse receipts,” the company’s CEO said.
