We are at the beginning of the 4th industrial revolution. Technology is profoundly transforming our lives. The combination of innovations such as artificial intelligence, internet of things, robotics, and blockchain, will pave the way for this revolution. We are experiencing technological changes that will alter the way we live and work on an unimaginable scale in the coming years.
There is one particular technology that catches my attention, and it’s blockchain, this technology promises to give authenticity, trust, and equality of criteria, through a consensus protocol, in global and decentralized environments.
Thanks to this technology, we can tokenize, any right, asset, stock, commodity, intangible asset, a legal association, or agreement. All of these assets will be able to be represented, tested, and transferred with a digital token.
But, what is asset tokenization?
Tokenization is the process of converting assets into tokens that can be registered, exchanged, and stored in a blockchain system. That may sound quite complex, but I assure you it is not that difficult.
To keep it simple, tokenization converts the stored value of some physical object, such as a car, or an intangible object, such as a credit, into a token that can be handled throughout a blockchain system. One could tokenize, for example, a piece of art, a real estate asset, a car, gold, a barrel of petroleum, among others. In short words, any asset that you can imagine, the sky is the limit.
What advantage does this bring?
There are many advantages that the tokenization of assets can bring to the financial industry. The most often mentioned are the reduction of administrative work, the decreasing of costs by the removal of intermediaries from the process, much faster asset transfers, and the availability to trade them 24/7 from anywhere in the world.
Also, this technology allows you to have fractional ownership of an asset; for example, you can own a fraction of an art painting by Claude Monet. Which will lead to higher liquidity and accessibility to very illiquid assets as well as helps to democratize investments. This kind of assets will become easily transformable in money and will allow a more significant number of people to participate in their returns due to the reduction of the investment of entry. However, this is not something new, but it certainly simplifies the whole process.
It offers some advantages to the real estate market as well. In addition to those we have named above, the use of smart contracts will enable to automate the change of ownership of a house once the payment has been made. Also, once an investor acquires a token, no one can erase (or will be extremely difficult) the ownership information because it will be added on the public blockchain making it immutable and transparent.
Many of the advantages will not be possible without major social, legal, and technological changes that could take a long time and resistance to be adopted from unprivileged sectors.
Even though the third parties are removed, it’s necessary to create a new regulatory framework for this kind of activity.
Blockchain technology is still its early stages, so I believe it’s still not prepared for a massive enter of a vast market as the real estate is. It’s necessary to keep developing this technology.
Tokenization is a promise of a massive change to how we see things nowadays. It allows us to buy and sell all kinds of assets while democratizing the process of owning it.
France is taking a step forward in Europe by beginning to create regulatory frameworks for this type of activity. The AMF seems really interested in regulating it. You can check the recent “Loi Pacte” law that has been approved.
Blockchain offers an exciting alternative to the financial market and a unique way of owning a part of an object such as a car or a painting. Little by little, this will begin to change the way we take ownership of things.
Tokenize the world!