What Does it Mean to Tokenize?
Tokenization is a process widely discussed in the blockchain and cryptocurrency industry.
Despite its common use, many people are unfamiliar with its actual meaning.
In this article, we will provide a comprehensive breakdown of tokenization to ensure you have a clear understanding of this topic.
What Is Tokenization?
Tokenization involves converting various assets into digital units called tokens.
These tokens typically operate on blockchain platforms and are governed by smart contracts and algorithms.
Almost any type of asset can be tokenized, including real estate, artwork, ownership shares in a company, and more.
Tokenisation Explanation | Source: Smartchainers
Tokenization is gaining popularity because it reduces barriers for companies seeking funding by allowing them to sell assets on an open market.
For instance, companies that wish to avoid the complexities of an initial public offering (IPO) can potentially issue tokens instead of traditional stock offerings.
Blockchain tokens are commonly traded on cryptocurrency exchanges, and their prices fluctuate based on supply and demand dynamics.
Security Tokens and Utility Tokens
Both security tokens and utility tokens have emerged as valuable and desirable instruments.
Although they differ from traditional cryptocurrencies like Bitcoin and Litecoin, they leverage blockchain technology and serve as tradable financial units.
As the blockchain industry is still in its early stages, regulatory frameworks for security tokens and utility tokens are still being developed worldwide.
However, it is highly likely that an increasing number of companies will create both utility tokens and security tokens in the near future.
Benefits of Tokenization
Tokenization offers several benefits to companies.
It provides a means for users to access and utilize company products and reduces reliance on third parties for securing public funding.
Therefore, both the security token market and the utility token market are expected to experience significant growth in the coming years as more companies explore their potential advantages.