This simply means Tokenization of assets, it is the process of transformation of assets in blockchain. It includes physical as well as non-physical assets and applies to industries including art, finance, real estate etc., It is just the way of digitizing tangible and intangible assets and transforming them into tokens.
To put in a terms, Asset tokenization is the process by which an issuer creates digital tokens on a blockchain or other form of distributed ledger to represent digital or physical assets. Blockchain technology guarantees that once you buy tokens representing an asset, no single authority can erase or change your ownership, making it entirely immutable
Example of Real Estate Tokenization
Imagine you own a piece of land or an apartment in Chennai that is worth ₹4 crore (₹40,000,000). You need to raise ₹5 lakh (₹500,000) for a personal expense, but you don’t want to sell the entire property or take a loan against it. Instead, you decide to use a new approach called property tokenization on the Ethereum blockchain.
Here's how it works in simple steps:
Divide the Property into Tokens:
Let’s say you divide the value of your apartment or land into 1,000,000 small pieces or “tokens.” Each token represents a tiny share (0.0001%) of the property.
Now, each of these tokens is worth ₹40 (since ₹4 crore divided by 1,000,000 tokens equals ₹40 per token).
Issue Tokens on Ethereum:
You create these tokens on a public blockchain like Ethereum. This way, the tokens are recorded digitally and securely.
Using Ethereum’s technology, these tokens can be bought and sold by other people on online platforms, just like you can buy or sell shares of a company.
Sell Some Tokens to Raise Money:
To raise ₹5 lakh, you only need to sell 12,500 tokens (since 12,500 tokens x ₹40 per token = ₹500,000).
People who buy these tokens will own small shares of your property without owning or using the physical space. Investors could include anyone from Chennai, elsewhere in India, or even abroad, as long as they comply with legal rules.
Ownership Recorded on Blockchain:
- Once someone buys these tokens, the ownership is securely recorded on Ethereum’s blockchain. This record cannot be changed or erased, so each buyer has proof of their share in the property.
How Investors Benefit:
If the value of the land or apartment increases over time, the value of each token will also go up. So, let’s say after a year, the value per token rises from ₹40 to ₹50. Now, each investor could sell their tokens to someone else at this higher value, making a profit.
For example, if someone bought tokens worth ₹4,000 initially, and a year later they sell them for ₹5,000, they make ₹1,000 in profit.
Why Tokenization is a Game-Changer:
Investors: They can invest small amounts (like ₹4,000) in property, something usually only possible with large amounts of money.
Liquidity: Investors can buy and sell their tokens easily on an exchange, providing flexibility similar to buying and selling stocks.
Property Owner: You get access to cash (₹5 lakh) without having to sell or mortgage the entire property.
This is for Real Estate, but What are can be Tokenized,
The possibilities are endless, as tokenization allows for both fractional ownership and proof-of-ownership. The examples include traditional assets like venture capital funds, bonds, commodities, and real estate, as well as assets like stablecoins, NFTs, sports teams, race horses, artwork, and celebrities. Companies worldwide use blockchain technology to tokenize almost anything. However, we have grouped them into four main categories:
Asset. An asset is any item of value that someone can transform into cash. It’s further divided into two classes: personal and business. Personal assets can include cash and property. Business assets include assets that are present on the balance sheet.
Equity. Equity (shares) can be tokenized; however, the assets remain in the digital form of security tokens stored online in a wallet. Investors can typically buy shares on a stock exchange.
Funds. An investment fund is a type of asset investors can tokenize. Each investor is provided tokens that represent their share of the fund.
Services. A business can offer goods or services as a way to raise funds or conduct business. Investors can use tokens to purchase goods or services provided by the supplier.
Tokenization is opening up new possibilities across industries, allowing businesses and individuals to leverage blockchain technology to tokenize virtually anything of value, from real estate and venture capital to art, sports, and beyond.