Tokenization could revolutionize the way we invest in assets. All assets, including company shares, paintings, valuable metals, and real estate properties, are being tokenized via the blockchain. Asset tokenization is the process of turning real assets into digital ones. Let us use an example to explain how it works.

An Example explaining Asset Tokenization

For a time, let’s not forget blockchain and smart contracts. Let’s say you want to invest $5000 in real estate. You might want to start small, and then increase investment slowly. For example, you might invest a few thousand every three to six months. This may seem awkward in the real-estate industry. There have been many people who were unable to purchase apartments that are four or five meters square.

Now reverse the situation. You own an apartment and are in dire need of money. You only need $30,000. Your apartment is worth $200,000 but it’s only $30,000. Are you able to use the property to make it more valuable?

This is where tokenization comes in. Tokenization refers to the conversion of ownership rights in an asset to a digital token. An apartment worth $200,000 could be converted into 200,000 tokens. Each token represents a 0.0005% share in the apartment. Tokens are then issued on any blockchain platform that supports smart contracts, such as Ethereum. One token means that a user owns 0.0005%. Someone who purchases 80,000 tokens will own 40% of that asset. They can buy all 200,000 tokens to become 100% owners of that property.

Blockchain is an immutable public record that allows you to delete ownership of tokens purchased. Now it is clear why blockchain technology is used in such services. We took an asset, tokenized and created its digital representation via the blockchain.

Because tokenization can offer greater liquidity, reduced costs, faster settlement, and increased liquidity, investments continue to be made in different industries. Let’s take a closer look at the reasons why tokenization is becoming more popular.

Here are some reasons why tokenization is becoming more popular in the market.

No territorial barriers

Investors can easily invest in properties located anywhere in the world. Asset tokenization on the Blockchain makes investment easy, secure, and quick.

Eliminating middlemen

The settlement of assets trading can often take several months. This process requires external entities to validate transactions and verify investors’ eligibility. It also adds costs. With blockchain’s immutability, transparency, and ability to provide immutability, tokenization takes out the need for intermediaries.

Fractional ownership

Digitized assets can be easily divided. Investors have the option to invest in small portions of tokenized assets. A tokenized property can be bought for 10%. This removes all barriers to entry for billions upon billions of potential investors.

Increased liquidity

The blockchain allows for an easy investment process. Asset tokenization facilitates the automated transfer ownership and assures compliance. Tokenized assets have a lower complexity and cost, and allow investors to use fiat money or P2P trading on regulated markets. This can improve liquidity.

Transactions quicker and cheaper

Smart contracts are used to automate the transfer and transaction of tokens. With no intermediaries needed, automation can help reduce the cost of buying and selling. Automation speeds up deal execution, resulting in lower transaction fees.

Broader Investor Base

Traditional trading of real assets was restricted by the degree of fractionalization. Asset tokenization eliminates this limitation, allowing you to buy or sell tokens representing fractions ownership. The investment process is made easier by a larger investor base. Tokenization could open new investment opportunities and allow investors to diversify their investment portfolio by purchasing assets they couldn’t afford before.

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