What is tokenization?

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With the development of blockchain technology, the spectrum of its applications began to extend. Tokenization is a milestone in the technological development of the world nowadays. The solution allows you to transfer assets to the digital environment, making them secure and allowing trade. From the business perspective, it’s an innovative form of funding projects for investors. We invite you to the article, where we’ll talk about what exactly token is, types and of tokens, what could be tokenized, and as a curiosity, we will tell you about the phenomenon of Cryptopunks.

Token as a concept

A token is a digital asset based on blockchain. Sure, in the real world, there are also tokens. For example, a central bank can launch their occasional token with the crucial historical milestones or with the names of national music composers. For this article, we underline that it means blockchain token if we’re talking about the token. Real-world physical tokens have only three applications – collecting, speculation, and value storage. Digital tokens have many more of these uses.

Let’s learn how to distinguish one aspect. What is the difference between token and cryptocurrency? It’s simple. Cryptocurrency is also token but native. It means it has its own blockchain like Bitcoin or Ethereum, and the leading destination is buying and selling products and services or trading on exchanges. The price is the function of buying and selling cryptocurrency, and it is not dependent on any other financial instrument or project working. Token indeed hasn’t got its own blockchain, but it has many more applications, which we will talk about in the further part of the article. Summarizing cryptocurrency is also a token, but it passes different conditions. If we talk about tokens, we don’t talk about cryptocurrencies because that’s the specific case. Like a square that is always a rectangle, but a rectangle is not always a square. What’s their common part? For sure, you can use both to buy and sell products and services, use them to invest and speculate on the future value.

Types of tokens

Currency-type tokens are used for transactions, and the market establishes the price. Those are cryptocurrencies. 

Utility tokens – having them allows you to use services and products, e.g., from a specific platform. Their applications depend on the solutions offered by the project’s author, like access to the courses. 

Security tokens – are digital, formal collateral such as a financial instrument or real estate, and they are often also NFT tokens due to their uniqueness.

NFT – non-fungible tokens are unique digital records that provide a certificate of authenticity for the file it contains. NFT tokens will be discussed in more detail in the future, as they are a natural phenomenon in terms of their popularity.

What can we tokenize?

For token creation, particular programmatic environments are used that allow the creation of tokens. Those are usually websites that give the user that opportunity. The range of things that can be tokenized is really wide – it’s almost everything. 

From the legal point of view, a token could be the certificate of authenticity or the specific right to tangible or intangible property, such as a financial instrument, real estate, intellectual rights, patent on an invention, and many others.

As we mentioned before, it is a form of funding projects for investors from a business perspective. It is a form of buying the future value for today’s money for a user. The deal could be financial or usable. Do you need your life to be made easier by a startup invention just in the concept stage? You invest in its future use-value with today’s token price. 

Now let’s look at the NFT. Here the range of possibilities is unlimited. NFTs are often pictures, movies, songs, or other pop culture works. You can write on paper with a pen “hello world” and create NFT. The market will estimate its value, and if it accepts your price, you can quickly sell your creation on the internet.

NFT curiosities

Do you know what Cyptopunks are? Those are illustrations of digital, pixel folks. Creating such a thing is very easy? Do you know what their value is? In 2021, they were in the ranking of the most expensive NFTs in the world. The prices were around 10 million dollars or even more. You may wonder where that price comes from? We’ll give you a hint. It is about the speculative value and the possibility of joining a social group of people who own Cryptopunks. Owning it is, in this case, an indicator of wealth. Think how much value-added in the form of, e.g., business initiatives can result from the integration of people with such a high social status? It determines the prices. It is not the crypto trends that have the most significant impact here but the added value in the form of admission to the community plus the speculative value and the possibility to store value in a world dominated by inflation.

Summarizing

Tokenizatization is an answer for the modern world reality in terms of security, and it is also a development destination in the business area. It is a fascinating digital solution that adds momentum to a world whose major determinant of development in technology. It is worth knowing and understanding tokenization to stay on top of current trends as it increasingly becomes a part of our lives.