Many people are using buzzwords centered on blockchain technology without an in-depth understanding of its underpinning technology. The blockchain is a decentralized ledger where digital representations of transactional data can be stored. These digital representations can be synonymous as coins, where additional platforms built upon the blockchain’s original coins are tokens; sometimes, tokens act as long strings of data used to finalize a transaction. This data ensures the creation and existence of entries on a given blockchain or ledger. The token itself can have several meanings within the context of cryptocurrency; for the purposes of this blog, we will discuss real assets uniquely represented on the blockchain, also called tokenized assets (or security tokens, see below). A revealing example to check out is the successful game called CryptoKitties, as it hosts many possibilities for keeping the permanent record of an asset (in this case a kitty), including its traits and ownership history.
The process of converting ownership rights of an asset into a digital token on the blockchain is called tokenization. Ownership rights of the asset change hands (as determined by past and current ownership), while the physical asset remains in the same place. For example, if a real estate property is purchased originally at €1 000 000.00 and the owner decides to ‘digitize’ the asset, he or she could place 400 shares of the real estate property – valued at €400 000.00 and priced at €1 000 a share – on a cryptocurrency platform for public offer. In doing so, buyers will own digitized percentages of the real estate property in the form of tokens while the original owner now enjoys increased, instantaneous liquidity valued at €400 000.00 as well as €600 000.00 in retained ownership of the property. You can find another example on Stan Pearson’s post.
Tokenized Assets in Practice
As new markets will emerge for under-utilized and inaccessibly, illiquid assets, technology funding will become more digitally decentralized as physical cross-border trade would increase. New models for raising capital with the intent of digitizing assets will continue taking place, as the 5 listed projects below already attempt to do so:
Purpose: Fintech Company utilizing new technologies to expand the frontiers of traditional financing.
Functionality: “We build Internet of Assets (IoA) — a decentralized network which evaluates assets automatically and instantly. It greatly contributes to the development of a new digital asset trading industry. Our BaaS (Banking-as-a-Service) platform applies Internet of Things (IoT) and Artificial Intelligence (AI) to appraise assets as well as improve the liquidity of assets expeditiously.”
Public Token Sale: November 2017
Purpose: Securities token platform hoping to enable trillions of dollars of securities to migrate to the blockchain.
Functionality: “ERC-20 tokens don’t have any restrictions on transfers and therefore can be freely traded by anyone. When dealing with securities, this a big no-no. As an issuer, you simply cannot afford to allow an unknown person or entity to hold one of your tokens. We are solving this issue at Polymath by proposing an open standard, called ST-20, that extends the ERC-20 interface and adds one key method, ‘verifyTransfer’.”
Public Token Sale: July 2017
Purpose: “The first open blockchain platform that democratises access to Fine Art.”
Functionality: The artwork is kept in the custody of art vaults like freeports - ultra luxurious art viewing spaces in tax free zones near major airports. The currency used within the ecosystem for purchases and leases is the ART, the ERC20 token issued by Maecenas. The tokens can also be traded on exchanges for fiat currency.”
Public Token Sale: September 2017
Purpose: A platform attempting to bridge blockchains and the $256 trillion worth of real-world assets.
Functionality: The platform pays fiduciaries that fulfill accounting requirements and interface with legal-financial institutions; aligns incentives between platform participants while disincentivizing bad actors; collateralizes all SmartTrusts' underlying assets.
Public Token Sale: Pre-sale allocation taking place now
Purpose: “LATOKEN transforms access to capital, and enables cryptocurrencies to be widely used in the real economy by making real assets tradable in crypto.”
Functionality: “The LATOKEN business model is based on charging low transaction fees to attract a wide range of cryptoholders and asset owners and drive up trading volume on the platform. Our platform enables cryptoholders to diversify their portfolios by purchasing asset tokens linked to 5 classes of real assets (equities, real estate, loans, commodities and works of art) while allowing asset owners unlock the value of their assets.”
Public Token Sale: August 2017
Blockchain technology allows future investors and owners of assets to tokenize the value of their assets onto a digital exchange, thereby increasing liquidity. As liquidity increases, investors can now own tokens of other interesting and relevant projects also placed on the blockchain ledger.