Back to Basics: Tokenisation Explained
Tokenisation, in essence, transforms the value of an asset into a digital token on a blockchain network. Imagine converting a physical asset, like a piece of real estate, into a digital certificate, enabling easier online trade and management. Remember also that digital certificates carry the same legal rights as traditional share certificates.
Consider the impact of widespread tokenisation on real estate investment funds: Traditionally, these investments involve complex processes and intermediaries. Tokenisation can massively simplify this, allowing investors to buy and sell fund fractions (digital assets) with the ease of stock trading.
Tokenisation's efficiency can be thought of as being the equivalent of transitioning from a manual, paper-based system to an automated digital one.
Let's distinguish between traditional assets and tokenised assets:
Traditional Assets:
- These are tangible or intangible assets (think stock, bonds and currency).
- Ownership is most often represented by physical certificates or is maintained on centralised electronic registers.
- Transactions involving these assets often require intermediaries, like brokers or banks, leading to delays and additional costs.
- There's usually a higher barrier to entry due to the potentially substantial capital requirements.
Tokenised Assets:
- Tokenised assets represent ownership in an underlying asset, but this ownership is recorded on a decentralised digital ledger (blockchain).
- The decentralised nature of blockchain means a higher level of security, transparency and immutability. Each transaction on a blockchain is encrypted and linked to the previous transaction, forming a chain that is nearly impossible to alter without detection.
- Transactions are peer-to-peer, removing the need for most intermediaries, which streamlines deal processes and reduces costs.
To learn more about the world of alternative assets, download our report: We Need to Talk About Tokenisation.