What is the difference between Digitazation and Tokenization?

A change in the usual way of life amid the coronavirus pandemic has accelerated the transition of many industries, including financial, to the virtual space. Asset tokenization has become an important component of digitalization – the gradual introduction of modern technologies in various areas. Here is more about digitalization and tokenization.

What is asset tokenization, and why is it important?

Tokenization converts rights to any asset into a digital token on the blockchain. The development of clear standards for transferring assets from the real world to the digital world is of interest to all participants in the global market. This interest is growing because tokenization provides the advantages of distributed ledger technologies and access to the crypto-financing market while preserving all asset characteristics.

A token can be thought of as a basic unit of account or unit of value issued by an interested party within a particular blockchain. Physically, tokens exist as an entry in a ledger distributed in the blockchain chain. The most common type of token is cryptocurrency. However, from a technical point of view, classifying cryptocurrencies as tokens is controversial. Among the well-known tokens, not cryptocurrencies, we can name EOS and RNTB.

So, tokenization is the process of linking information about the asset to the blockchain, within which tokens are issued. The Ethereum blockchain is the most used for issuing asset tokens for several reasons. By giving each unit of an asset its unique identifier, we can record data about that unit in a permanent, tamper-proof register and track the subsequent movement of that asset. Tokenization of assets unites the digital and real worlds, providing the maximum security and protection of information.

Digitization of business through tokenization: what is the difference?

The economic side of our world is filled with various assets: securities, real estate, gold, oil, art, and more. Most listed assets require significant effort and expense for physical transfer or cannot be divided into shares. Therefore, startups and large financial companies worldwide are now competing to develop a system that would be the next step in the evolution of means of asset exchange, namely means and standards of asset tokenization. It is essentially the same as owning stock in a corporation, which gives the investor partial ownership of an expensive asset.

Many assets can be tokenized and thus made available for trading on exchanges. The issuance of value tokens is just as suitable as a funding tool for young companies as it is for established mid-sized companies or industrial giants. Tokenization requires technical, tax, and legal know-how.

By converting assets into tokenization, for example, bitshares, we break them apart, expand the circle of potential buyers, and increase the attractiveness of the transaction. Tokenization can also open up new markets as it builds trust between the participants in a transaction and brings together sellers and buyers for more transparent exchange processes than ever before.

Why do we need tokenized assets, and what are their advantages?

Technically, tokenized assets are a modern tool that can improve operations in the financial market. Such technology offers the following advantages:

  • Simplification of work with assets. Transferring operations to a digital format eliminates paperwork. In addition, the ability to interact with assets online speeds up the workflow.
  • Cost reduction. Digitalization of transactions allows saving on expensive bank transfers.
  • Refusal of intermediaries. Tokenized assets can be bought directly from issuers, bypassing intermediaries.
  • Expansion of opportunities for the investor. The digitization of assets facilitates their exchange and depositing and withdrawing funds.