The advantages of tokenization are some of the things you should look at in the world of crypto. this article will offer a distinct explanation of the concept of tokenization.
Tokenization is the process of converting an asset or the rights of an asset into a token.
Through tokenization, indivisible assets can be made divisible, and therefore more than one person can own an
asset, which on physical grounds can hardly be possible.
A token is simply a digital unit, a digital representation of the ownership of an asset.
Tokenization has been in use, long before the system of blockchain was established.
Read Also: Terra Classic Crosses The 50 Billion Token Burn Threshold. Seems There Is More
It was used particularly in safeguarding information on our credit cards and transactions made with them.
The whole concept of tokenization involves creating a secure link, through which assets can be
safeguarded, it also involves liquifying assets to enable fractional ownership of even non-fungible assets.
Categories Of A Token
A token can be broadly categorized into two, that corresponds to two main types of assets;
- Fungible tokens
Fungible assets form fungible tokens. Fungible tokens are not unique, because they can be
easily replaced and duplicated.
They are also very flexible, as they can be broken into smaller units, and can be easily fractionalized, therefore joint ownership is more easily achieved in fungible tokens than in non-fungible tokens.
- Non-fungible token
They are very unique as duplicating them is not possible, and they cannot be easily replaced.
Also, they cannot be easily broken into fractions.
They are usually tokens of objects, artworks, and other valuable items. The history of ownership rights over such items can be easily tracked through their tokens.
Converting non-fungible assets into non-fungible tokens makes fractional ownership easier and possible, than in their physical form.
Read Also: Shiba Inu Community to Have Ownership Stake in Welly
Non-fungible tokens (NFT) are the latest news in the crypto world, selling millions of dollars, therefore a lot of
people are currently rushing into it.
Other important types of tokens include
- Security token
These are used to authenticate/establish ownership of a particular property. You can
incorporate any characteristics into them to fit your personal desires, using a crypto
programmer.
- Utility token
It is the most basic token in blockchain, it has practical use in the business world and
even in governance. It can be used to perform transactions of buying and selling, and in
voting.
- Platform token
They are usually used to create decentralized applications.
Tokens can be created by web developers, and they are usually nonspecific, this means that tokens
can be used for more than one purpose regardless of the purpose of creating it, depending on if it suits
your requirement as well.
Read Also: All You Need To Know On Decentralized Finance (DeFi)
Assets Can Be Converted To a Token
Almost any asset can be converted to a token, but broadly, these assets are divided into three;
- Intangible assets:
these are assets that have no physical representation, which means they are not physical
objects in the real world.
These assets are usually legal actions or legal words to justify or authorize an act, or to establish a verdict, an example of such assets is copyright over a book.
- Fungible assets:
These types of assets are easier to convert to tokens because they can easily be broken into
smaller units. Such assets are also easily replaceable by a similar item.
Examples of such assets include fifty dollar notes, which can be easily broken down into two twenty-five dollars, and can also be easily replaced by another fifty dollars, gold, wheat, etc.
- Non-fungible assets:
These assets are antonymous to fungible assets, which means, they are not easily replaceable,
they are not easily broken down, and they are not easily converted to tokens.
Nevertheless, they can still be tokenized. Example of such asset is an artwork, diamonds, baseball, real estate
asset, etc.
Advantages of Tokenization
- One of the most important uses of the token is that it offers fraction ability to assets, which encourages
joint ownership. This facilitates shares and investment in a business. -
Tokenization enables faster and less costly transactions. This is because the third parties are
eliminated in tokenizations, therefore there are no extra charges to pay.
Since tokenization is an automatic process, it makes transactions faster, without the parties having to physically meet each other for the transaction to proceed.
- Safe and secure transactions. There can be no issue of being duped.
Tokenization works on the principle of the smart contract.
It can be created in multiple ways, such as; random generation of numbers, and imputing reversible or nonreversible cryptic functions.
Final Note
Tokenization is another aspect of the crypto world that you can exploit to make money today. You can venture into it with adequate foreknowledge and
technical know-how on the pros and cons provided in this article.