Crytoassets and the Tokenized Economy

- Overview

A "crypto asset" refers to any digital asset that is issued and transferred using blockchain technology, essentially a digital representation of value stored on a distributed ledger, while a "tokenized economy" describes a system where real-world assets like stocks, real estate, or even art are converted into digital tokens on a blockchain, allowing for fractional ownership and easier trading on a decentralized market; essentially, it's the concept of using blockchain technology to tokenize various assets, creating a more fluid and accessible way to trade them.

Key points about crypto assets and tokenized economy:

Crypto assets:

• Can include cryptocurrencies like Bitcoin and Ether, but also encompass other digital assets like utility tokens representing access to a platform or security tokens representing ownership in a company.
• Are stored and transferred on a blockchain, a decentralized ledger technology, ensuring security and transparency.

Tokenization:

• Process of creating digital tokens that represent real-world assets, allowing for fractional ownership and easier trading.
• Enables smaller investments in high-value assets like real estate by dividing ownership into smaller digital tokens.
• Can be used to streamline complex financial transactions and increase liquidity.

Example of a tokenized economy:

• Real Estate: A property is divided into digital tokens, allowing multiple people to invest in a fraction of the property through a blockchain platform.
• Art: A piece of artwork is represented as a unique digital token on a blockchain, allowing for fractional ownership and easier resale on a global market.

- Cryptoassets

Cryptoassets, including cryptocurrencies, security tokens, and utility coins, cannot be ignored right now. There are now more than 2,000 cryptoassets, including new types of assets such as stablecoins, with a combined market cap estimated at $211 billion. The number of users on the cryptocurrency exchange is said to exceed 30 million, while major financial services institutions such as Fidelity are launching crypto products and services. 

Together, these assets, coins and tokens have led to the emergence of a tokenized economy. Global financial services institutions are looking to actively restructure and participate in this blockchain-based tokenized economy. While it’s still early days and it’s hard to predict how the next 10 years will unfold, the tokenized economy could be one of the most impactful innovations that cryptocurrencies will bring.

- Tokenization

Tokenization is the process of digitally storing property rights to something of value (assets) on a blockchain or distributed ledger so that ownership can be transferred through the blockchain’s protocols. 

Today, many startups are using blockchain technology to build entire businesses. However, instead of turning to the public stock market or venture capital to fund companies, businesses are turning to cryptocurrencies. So-called initial coin offerings (ICOs) have been on the rise over the past few years. This is a new way of raising capital for startups that issue new digital tokens or coins. While much has been said about cryptocurrencies like Bitcoin in the past, these are just one type of cryptoasset and many others have emerged, including stablecoins, security tokens, and utility tokens. 

In particular, it points to the potential to tokenize traditional and emerging assets. The digital tokenized representation of these assets issued, traded and managed on a blockchain platform can reduce the friction and overhead costs associated with the issuance, transfer and management of traditional assets such as securities, commodities and real estate assets. Tokenization can also help increase liquidity, codify rules and regulations, and improve transparency throughout the asset lifecycle.

- Initial Coin Offerings (ICO)

An Initial Coin Offering (ICO) is essentially a fundraising tool. First, startups can create new cryptocurrencies or digital tokens through many different platforms. One such platform is Ethereum, which has a toolkit that allows companies to create digital coins. The company will then eventually conduct a public ICO, where retail investors can buy the newly minted digital tokens. They will pay for coins using other cryptocurrencies such as Bitcoin or Ether (the native currency of the Ethereum network). 

Unlike other fundraising methods such as an initial public offering (IPO) or even venture capital, investors do not receive equity in a company. For example, if you buy stock in a public company, you own a fraction of it. Instead, the promise of an ICO is that the coins can be used for the final product created. But there is also hope that the value of the digital token itself will appreciate — and can then be traded for profit.

[More to come ...]