Tokenization and the Blockchain
This guest post is written Thomas Friedrich, a co-founder of Ambitorio, a Crypto Valley based startup in the digital licensing space. Thomas is a Blockhain enthusiast, an early Bitcoin adopter and was one of the first members of Crypto Valley.
Today, the “blockchain” is a popular topic. There are many trends concerning blockchain technology and this post examines one trend – tokenization.
Blockchain is a technology for creating a public ledger where all transactions are added continuously. The ledger gets bigger and bigger with every transaction written to the ledger. To make sure that everything written in the ledger is correct, people around the world download the ledger and participate in writing in it and checking it for mistakes.
Blockchain technology is being used in three types of blockchains -- public, private and federated and there are many different implementations of those types of blockchains. For example, money exchanges and projects to keep the ocean clean by identifying plastic waste . All of these products are based on blockchain technology’s unchallenged features -- security, decentralization and unforgeability.
These three features make tokenization possible. Tokenization is the conversation of the value of an asset into tokens that can be recorded on a blockchain. Imagine you had a pair of Air Jordan sneakers worth $1000. You could create 1000 $1 tokens on a blockchain to represent the value of the sneakers. Then, you could sell the 1000 tokens (with the sale being recorded on the blockchain). When someone acquires all 1000 tokens, they will own the sneakers.
Ethereum was the first blockchain to make tokenization of real world assets possible. Ethereum made this possible because it is not limited to a single token or coin. Rather, Ethereum gives its users the opportunity to create their own tokens that can be traded directly on Ethereum’s network against its own token / coin / currency called Ether. Because the user created tokens are traded against Ether tokens, the user created tokens represent a certain value and the example of the Air Jordan sneakers becomes possible.
Tokenization can help to solve day-to-day problems, such as handling identities or making investing in startups. It also is being proposed for less traditional ideas such as beverages, dance moves, and car locks. It is as if tokenization has become a requirement for future success regardless of the underlying idea or product to be tokenized.
To be honest, you can’t blame creative people for trying to squeeze through a potential idea. There have been many successful initial coin offerings (ICO) in the past, rising millions with only ideas rather than technology. Big names like Tezos or aeternety are known widely outside of the crypto world because of the huge amount of money they raised, not because of revolutionary ideas. Eventually, there will come a time when nobody raises an eyebrow anymore. The technology of tokenization will stay, but many of the things that did make it such a hot topic are already fading away.
Public domain image from Ethereum.