Asset tokenization has revolutionized our approach to raising funds and investment. Keep on reading to find out more. The transition that’s currently happening has birthed many opportunities, especially to investors. What’s more, digital transformation is changing every aspect of the world, starting from daily activities, including shopping.
With that in mind, today’s article will discuss asset tokenization and how to store them, avoid theft and ensure stability. So, without further ado, let’s get started, shall we?
What is asset tokenization?
In simple terms, asset tokenization involves converting any physical asset into non-physical in the blockchain network. The process is, however, more complicated than that. But tokenization of assets has gained popularity in recent times thanks to the surge in crypto applications in various industries.
The assets are typically converted into tokens, hence the name tokenization. However, one crypto token doesn’t necessarily equate to one token. The investments are split into small chunks that are then converted to tokens. And once the owner has entered the digital world by converting all assets to tokens, they can now trade or store their tokens.
If you’ve heard about tokenization, then you’ve also seen the word STO severally. STO, which stands for Security Token Offering, is the driving force of asset tokenization and blockchain technology as a whole. With the increase in crypto trading volumes, more and more people are turning to asset tokenization opportunities.
According to an article on Medium by Plutoneo, in Europe alone, the asset tokenization market will reach €1.4 trillion in 2024. Without a doubt, asset tokenization is about to become the next global trend, with innovations currently changing the crypto market. Today, the crypto market is no longer about spot and futures trading.
Benefits of Asset Tokenization
There are several perks to tokenization. You might be thinking that this is nothing new. But there’s a big difference between digitalization and tokenization in the use of blockchain technology. And with that in mind, blockchain technology offers a lot of benefits to tokenization, including:
1. Transparency
Decentralization implies transparency which is what blockchain technology brings to the table. Every transaction carried out on blockchain technology is recorded and available to its participants.
That’s especially important to the users since they can track the history of their assets, verify their origin and see the transfer of ownership. Therefore, it reduces your assets’ chances of fraud or theft since you can track the movements.
2. Accessibility and liquidity of assets
Through blockchain technology, you can tokenize your assets from anywhere in the world. What’s more, the list of assets that can be tokenized is extensive, including cars, real estates, luxury watches, etc.
That said, blockchain technology eliminates the barriers that come with investment and creates greater liquidity. Additionally, when you want to convert your tokens to cash, it’s straightforward. However, if you need urgent cash and need to liquidate your real-life assets, it can be highly challenging.
3. Immutability
The data stored within blockchain technology is immutable. That means anyone who wants to sell, create or buy tokens can be confident that the asset information and records are accurate. The transaction records are verified within the blockchain and authenticated; hence all information is reliable. Above all, the records in the blockchain ledgers can’t be altered or tampered with.
4. Cost Savings
Another significant benefit of asset tokenization is cost savings. The decentralized technology allows the seller and the buyer to have direct communications, eliminating the need for intermediaries.
That’s quite significant because it reduces the cost since, on standard transactions, the middlemen always take a cut of the money for third-party services. Additionally, it typically takes days to transfer ownership of assets, but the transactions can be completed within seconds thanks to blockchain technology.
Risks to Asset Tokenization
Like any other business endeavor, asset tokenization also carries risks. That said, let’s take a look at some of the risks you might be exposed to with this process.
1. Regulatory challenges
Blockchain technology is still a relatively new concept to most countries, and so is asset tokenization. That said, most governments haven’t yet adopted regulatory laws that govern this type of industry. However, those are some of the challenges that any new technological advancement has to face. Therefore, politicians and regulators need to develop ways to join this trend and enforce regulations to ensure smooth operations within blockchain technology.
2. Not entirely attack-proof
As I said earlier, blockchain technology is virtually impossible to hack. However, as the days go by, hackers are becoming more innovative. That said, such technological advancement can be hacked with the right set of skills. Thankfully, the team behind asset tokenization does not sleep, and they keep improving security protocols from time to time.
And now it’s up to you to constantly update your portfolio’s security systems to ensure you are impervious to hack attacks. Additionally, you can also use cold wallets to store your tokens away from the internet connection. That means your tokens will be safe from the online community.
Take Away Message
Asset tokenization is already playing a vital role in the adoption of blockchain technology worldwide. And most investors can leverage this current trend and make substantial profits. We all know the future of currency is cryptos, which is one step in the right direction. So is asset tokenization safe? Well, the straight-up answer is yes and no. Yes, because of the constant security updates, the team behind this technology keeps on working on new ways to safeguard the community.
And no, because there are still hackers who’ve managed to penetrate the security protocols successfully. But with the current trends, we will soon see a crypto world that doesn’t have any security issues. All in all, it’s up to you to constantly find ways to safeguard your assets to ensure you don’t lose all your investment in the process. Above all, always ensure you never have all your assets stored in one platform, making it easy for hackers to find you. Spread out your tokens over different sites.
