Blockchain technology has made a lot possible. From powering cryptocurrencies to enabling tokenization, the blockchain is incredible. In this article, we will answer the question: what is tokenization?
What is Tokenization?
Tokenization is the process of representing real-world assets with tokens on the blockchain. Today, people are transferring stocks, art, real estate, currencies, and precious metals on the blockchain. This is possible because they can use tokens of the same value as the asset.
Tokens are tradeable on exchanges without the need to deliver the real asset. As a result, they offer people access to assets that were traditionally unavailable.
One major application of tokenization is stablecoins. These are tokens that represent the value of fiat or precious metals. For example, the value of one USDT is equal to one US dollar.
The concept of tokenization did not begin with blockchain technology. Around the 1970s, tokenization was used as a data security method. For instance, financial companies would utilize tokenization to protect confidential details like credit card numbers and financial statements. In this case, companies used a string of letters and numbers, the token, to protect these details.
Today, mobile payments use tokenization to protect data. When you add a credit card to Apple Pay, the company sends the details to the issuing bank. Next, the bank adds your details to a cryptographic function to create a token. Your phone will then receive the token representing your credit card. That means that if a hacker gets access to your phone, they will only discover the token and not your credit card information.
How It Works
Blockchain allows people to tokenize assets. Imagine that you own a piece of land where you have developed a resort with cabins, a camping area, a restaurant, and a nature walk trail. The entire valuation of the development is $100 million.
However, you find yourself suddenly in need of $50 million to expand your development. You could apply for a loan from the bank, but debt financing is too risky. Therefore, you decide to finance your expansion plans through equity financing. You have heard about blockchain technology and are not afraid to give investors equity ownership in your property.
So, what do you do?
You decide to create 100 million tokens, where each token represents one percent of your property. To do this, you will need an existing blockchain like Ethereum or Ravencoin. When creating a token, you are simply developing an algorithm that defines the characteristics of your token such as its name, value, and quantity, among others.
That is how tokenization works. You take an asset and create a digital representation of it on the blockchain.
Once you have a token, you can issue a security token offering to raise money for your expansion project. That means that you will sell the tokens to investors who, in turn, receive fractional ownership in your property.
You can distribute the tokens as you see fit. For instance, you only need to allocate a certain percentage of the tokens for sale to investors. The rest you can hold yourself, dispense to your board of directors, and use as payment for marketing services.
The Bright Side of Tokenization
Fractional ownership is attractive to investors that want to diversify their portfolios at an affordable cost. From the example above, investors can own property with only $1,000. If they were buying the whole property, they would need millions of dollars, making the investment expensive.
When you participate in the upcoming Tinaga pre-sale, you only need as little as $500. For a real estate investment, that is extremely affordable.
Furthermore, tokenization makes illiquid assets like real estate more accessible. That is because investors from anywhere in the world can buy the tokens and own equity in the asset.
The use of blockchain technology also provides transparency in property ownership and token transactions. Moreover, the immutability nature of the blockchain means that no one can forge the ownership of your tokens.
Are You Looking for Long-Term Investment?
Our project is an example of a tokenization use case. We have tokenized our beach property in the Philippines to raise money to build a luxury eco-resort. The pre-sale begins on November 16, 2020.
When investing in the blockchain and crypto space, a long-term strategy is low-risk and more rewarding. Our project is giving investors a chance to invest in a property that will be generating income for many years through hotel operations. If this is an opportunity you would like to participate in, register interest in our token on our website. Also, join us for the discounted pre-sale starting 16 November.