With ongoing talks of Central Bank Digital Currencies and now even a possible digital dollar, tokenization continues to be a hot topic both in the crypto world and in traditional finance. Its been a buzzword in the financial industry for a while now, and the concept is being explored by startups, established institutions and governments alike, through centralized and decentralized blockchain technology.
As the world of tokenization marches on, some questions have been raised from technological, financial and regulatory standpoints. Here is a deep look into tokenization, how it will impact the financial markets, and what challenges it currently faces on its way to mainstream adoption.
What is tokenization?
Tokenization is a process, through which assets are made digitally available on a distributed ledger. The concept has been made possible by the creation of blockchain technology which in turn, ensures that transaction and balance records cannot be tampered with or retroactively altered.
This process can take many different forms depending on what is being tokenized, the technology used, and the purpose of the token. Centralized or decentralized blockchain technology can be utilized depending on the aforementioned variables. Tokenization on a decentralized ledger allows ownership to be verified in a quick and trustless manner but also poses a challenge when it comes to performance and compatibility.
Digital tokens are mainly a way of representing ownership of the asset they are backed by and can be very useful when it comes to transferring or exchanging it fully or partially, improving liquidity and allowing for increased access to these assets.
From company or real estate ownership to art and video game items, tokenization reaches beyond financial applications and has the potential to transform and improve countless industries. Although tokenization is a fairly new concept, its alr ...