If you’re like us, you’re probably wondering what the heck tokenization is. We’ve been hearing about it for years, but the concept still seems pretty vague. While we can’t promise to make things less confusing (they are quite confusing), today we’ll explain how tokenization works—and how it’s changing the way people transact and trade valuable assets.
What is blockchain?
Blockchain is a decentralized database. It’s also called a distributed ledger, but it’s important to note that blockchain isn’t just a record of transactions; it’s also an immutable record of those transactions.
Blockchains are made up of blocks (hence the name) that contain data about all previous transactions on that chain, as well as new information added by users who want their transaction recorded in this block. A block can be thought of as an entry in an accounting ledger–it contains information about every transaction ever made on that particular chain, from its inception until now.*
Each block contains information about three things: transactions within the current period (for example, January 1st through December 31st), hashes for previous blocks in this same chain (this allows us to verify whether we have all the correct information), and some kind of hash function which determines how secure our blockchain actually is.*
What are smart contracts?
A smart contract is a computer protocol that facilitates, verifies and enforces the negotiation or performance of a contract. Smart contracts allow the performance of credible transactions without third parties. These transactions are trackable and irreversible, which makes them useful for various financial applications such as ICOs (initial coin offerings) or cryptocurrency trading platforms.
Smart contracts are self-executing: they operate on the basis of their pre-defined conditions without requiring any further input from the people involved in them at any time during execution. The code itself acts as an arbitrator in case there’s any dispute between two parties; this means there’s no need for middlemen like lawyers or judges when using smart contracts–just enter into an agreement with your partner(s), set up its terms on the blockchain ledger and let it do its job!
How do tokenization and security tokens work?
Tokenization is the process of converting rights to an asset into a digital token. This can be done by using blockchain technology, which allows for the creation of unique and traceable tokens that represent real-world assets.
Security tokens are backed by real assets like real estate, stocks, or bonds. They’re regulated by the SEC and can be traded on exchanges after they’ve been approved by them (if it’s a utility token).
Tokenization is a way for individuals or companies to issue their own digital asset or cryptocurrency.
Tokenization is a way for individuals or companies to issue their own digital asset or cryptocurrency. It’s also a process of converting rights to an asset into a digital token on a blockchain. This can be done through security tokens, equity tokens and utility tokens.
As you may know, the stock market has been around for hundreds of years and it works pretty well–but there are some drawbacks:
- It’s slow (how long does it take your broker-dealer firm to confirm that they’ve received your trade order?)
- There’s no transparency (how do you know if someone has access privileges or special information about an investment before you do?)
The future is here and it’s time to get involved with tokenization. The opportunities are endless and this technology will revolutionize how we do business around the world.