Tokenization represents the process of substituting a sensitive data element with a non-sensitive equivalent, i.e. token, which bears no extrinsic or exploitable meaning or value.
In essence, the rights to the ownership of an asset are converted into a digital token.
Tokenization can be used to own an entire unit of an asset.
For example, one token that represents the ownership of a piece of real estate or to split ownership of a single unity of an asset such as 200,000 tokens, each one representing 0.05% of a piece of real estate.
Tokenization has been described as the future of ownership. Some analysts believe that one day, tokenized systems will completely replace paper certification-based ownership systems.
However, blockchain-based ownership records are not currently recognized as legally valid in most places in the world.
Tokenization combined with blockchain is quite powerful, while also being useful in terms of PCI data security.
When a token is issued on a blockchain, the blockchain records the issuance and maintains a ledger of every single movement of that token.
A notable feature of blockchain with regards to tokens is that it controls for the double-spend issue.
Prior to the innovation of blockchain, any digital asset such as an image, or document, could be copied an infinite number of times by anyone with access to it.
Exploring Possibilities of Asset Tokenization
By overcoming the double-spend problem, blockchain can now facilitate the use of tokens that can be used in a similar way to casino chips or banknotes.
This has opened up tokens as a vehicle for investment in multiple projects.
Asset tokenization reflects the next evolution in tokenization. Tokenizing an asset involves issuing a digital token on a blockchain.
As such, the token represents an underlying tangible or intangible asset.
In this way, the economic value of the asset is conferred to the token. The ownership of the asset is represented by ownership of the token on the blockchain.