As one of the most common applications of blockchain, tokenization is gaining momentum in recent years. Check what it is and how you can use it for your business.
Even though we associate blockchain mainly with cryptocurrencies, its possibilities go far beyond sustaining crypto transactions. Blockchain can help companies across sectors store and process their data in a much more secure way and streamline its flow internally and externally. But there is another way of using blockchain that has drawn the attention of both regular and business users. It is called tokenization. What opportunities does it bring? Check our brief guide to tokenization and read about its advantages.
What is tokenization?
In a nutshell, tokenization is a form of digitalizing assets. They can either exist physically or be non-existent. Tokenization enables processing and selling them online, attributing a value to a particular token understood as a unit that contains data.
How does a token differ from a cryptocurrency?
Are cryptocurrency and token the same, then? In the end, cryptocurrency is a digital asset with an attributed value. The main difference lies in the function. Cryptocurrency serves for transactions, while the token is a multipurpose asset used for decentralized exchange, purchases, and investments. Cryptocurrencies are built on their own blockchains, while tokens can be built on the existing ones.
Summing up – you cannot use these terms interchangeably. Cryptocurrency is a type of token, but the token is a much broader concept than cryptocurrency.
How are tokens created?
Tokens come to life with Smart Contracts – secure agreements taking place on the blockchain network. Smart Contracts are a kind of automated contract software that executes itself. While in regular contracts, the parties have to control whether the conditions are being fulfilled, in Smart Contracts, this process happens automatically.
The software is only run when the predefined conditions are met. That provides the users with extra security. As they take place on the blockchain, the whole process is decentralized and does not involve intermediaries. Smart Contracts establish the value of the token.
How can tokenization contribute to your business?
What can you tokenize, and for what purpose? The spectrum of possibilities is immense, from crowdfunding to securing investments. Tokens can help businesses streamline and secure their processes – for example, in logistics, they can replace problematic bills of lading. Artists, on the other hand, can tokenize their artwork to sell it online while upholding their ownership. NFTs (non-fungible tokens) secure ownership rights, certifying the authenticity of the asset.
Businesses often reach out for utility tokens, mainly used for project investment purposes. When the platform is in the development phase, its creators use utility tokens to raise funds. Those who want to support the project can purchase them and exchange them for different benefits later.
As you can see, the potential of tokenization for business is impressive – it's worth making the first step towards its implementation!