Tokenization is poised to become the next BIG MEGATREND
Tokenization will revolutionize the way we invest and trade assets, but what is it, and what does it promise?
Tokenization refers to the issuance of blockchain tokens representing real tradable assets, whether it’s about company shares, commodities, art, real estate, and money, among others (and yes, “among others” can refer to everything).
Thus, blockchain can transform many industries and the way investors interact with businesses and brokerage firms. Thanks to its decentralization feature, blockchain can enable the creation of borderless networks where investors, businesses, and communities can interact with each other without a central authority.
One of the most important features of tokenization is the ability to own fractions of an asset. For example, as an investor, you might be interested in getting exposure to the real estate market by owning property in the best region. However, you might not hold enough funds to buy a single property, let alone create a real estate portfolio. If every property would be converted into multiple tokens, you could own a portion of it or shares of multiple properties and thus benefit from their potential price gains. By holding a token or several of them, you hold the definitive proof that you are the owner of a share of that property.
By converting real-world assets to blockchain tokens, issuers can secure greater liquidity. For example, private securities are typically illiquid, which affects the trading process on secondary markets. Thanks to tokenization, this problem can be addressed to give investors more freedom to implement various strategies on scarcer assets.
Modern blockchains enable fast and low-cost transactions, and this relates to tokenized assets as well. For example, Algorand relies on a consensus mechanism called Pure Proof of Stake, which was invented by MIT professor Silvio Micali. The algorithm ensures that the network has high throughput and low fees. This could speed up the adoption of tokenization as the main approach to deal with real-world assets.
Blockchain has become one of the most important technologies thanks to its unique attributes, including immutability and transparency. Once a blockchain transaction has achieved finality, it cannot be reversed, cancelled, or tampered with in any way. The good news is that Algorand ensures that transaction finality is reached in less than 5 seconds. This allows all network participants to monitor data almost in real-time and be sure about the authenticity of transactions.
Several decades ago, the main form of communication between investors, brokers, and market makers was done by phone. There were no online accounts and no advanced charting options right in your pocket. Today, everyone can get exposure to stocks by buying shares or speculating on their price via derivatives through online platforms. The internet has transformed the way we invest, but blockchain can do even more by making the investment process more convenient and accessible.