We go through life working to make money to buy things, save for rainy days, provide an education for our children, and, hopefully, someday retire in comfort. Some say a tokenized economy will help us to better achieve our goals by giving the average person better access to investments that are currently out of reach in our conventional economy. So, what exactly is a “tokenized” economy?
Tokenization
In software, tokens are digital representations of assets – both physical and digital. When you successfully log onto your bank’s website, the server will create what’s called a web token. This token is a digital representation of you – the end user.
Tokenization, on the other hand, is the process of converting any rights or assets into a digital token that can then be used, owned and transferred by the holder through a blockchain, without the need for a third-party intermediary – which offers significant cost-efficiency benefits; including, mitigating the complexities and inefficiencies associated with the current post-trade process.
A single token can simultaneously represent value, identity, information, ownership, property and basically any real- or digital-world objects. And, the blockchain can store a permanent history of transactions of these tokens. You can purchase your house or car using fungible tokens and, in return, receive a non-fungible token (or NFT) as proof of ownership.
Implementation
Blockchain technology is the driving force behind a tokenized economy by enabling secure interactions without intermediaries. Transactions can occur over the Internet as cheaply and easily as sending or receiving an email. And, these transactions take place over a trustless, encrypted decentralized system – meaning, the data is secure and unchangeable.
NFT tokens can be transferable or nontransferable depending on the use case. A plane ticket, which is a token for a specific seat on a specific flight, might be transferable or nontransferable depending on the type of ticket you buy. A piece of art or the registration paper of your car, for example, is unique but transferable. Identity-bound tokens like certificates or licenses are non-transferable because it wouldn’t make sense to transfer your driver’s license or university diploma to someone else.
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