The coming of age for Blockchain Technology brought with it a lot of advancement in the Decentralized Space and Tokenization could be its most important feature. From the Creation of Digital Currency to the exploding sensation of NFT and the Digital Art Space, all of it is possible through the technology of Tokenization. So what is the idea behind Tokenization? And should tokenization be the new thing or should we just stick to real-world assets?
The Rise of Tokenization
The word “Tokenization” has been a popular occurrence within the DeFI Space and it’s all thanks to the boom in 2021. The year when the Pandemic is still at large brought the idea of NFT into the public spotlight and with that the concept of Tokenization. The concept of Tokenization might be associated with Bitcoin and Blockchain but it traces its roots to the early 2000s when we are still in the early days of the internet.
The concept of Tokenization was created somewhere in 2001 when the internet was at its boom and the community was finding a way to safely store data. A company called Trustcommerce was the first to coin the term when it was designing a security system for a social networking service Classmates.com which needed a replacement for storing sensitive information of the cardholder. Its aim is obviously to avoid displaying the user’s personal information while not hampering the speed of the payment process.
This is where Tokenization was developed as a way to disguise the information and replace it with a code of numbers that can be accessed anytime it’s needed to process payments. From this TC Citadel was developed, allowing customers to reference a token in place of their sensitive card data. TrustCommerce then processed the payment on the merchant’s behalf. Instead of storing data, tokenization replaces the primary account number (PAN) with randomly generated symbols that would be useless if intercepted by hackers.
In simple terms, Tokenization refers to the process of exchanging sensitive data for nonsensitive data called “tokens” that can be used in a database or internal system without bringing it into scope. Although these Tokens represent an unrelated value, they retain certain elements of the original data that can be accessed anytime needed for processing. These tokens are usually in a form of a code of alphanumeric form while the original sensitive data are safely stored outside of the organization’s internal system.
Over the years Tokenization saw a greater influence in the Banking and DBMS sector as it saw most of its application there. Tokenization also saw growing importance as the number of fraud and data breach cases continues to climb and It is expected that the number of credit card fraud would reach $43 Billion by 2026. This is where the next development of Tokenization is very important as we continue to head toward a digital age.
Of course, what comes next was the introduction of the Tokenization concept within the Blockchain Network and it becomes a clear prominence with the rise in popularity of NFT. The presence of the Blockchain system adds another layer of security to the concept of Tokenization while NFT expands the possibility of Tokenization within the DeFI Space and the hype behind this concept is not stopping anytime soon.
We may attribute NFT for bringing the concept of Tokenization to the masses but basically any DeFI project that does not operate in its own native blockchain can also be considered a token. One of the earliest versions is Tether (USDT) which was introduced in 2015 and now is a digital token that is available in Ethereum, Binance, and Tron blockchain. The concept of tokenization then became an opportunity for everyone to create a project and be part of the DeFI Space.
We see other applications of the Tokenization concept being implemented in the creation of Digital Land or Metaverse and Digital Assets or Synthetic. The hype behind these concepts might fade away but it is less than 2 years ago that people are willing to spend hundreds or thousands of dollars for this digital proof of ownership of an asset. The ease behind Tokenization also presents a significant challenge in the DeFI Space moving forward.
Tokenization paired with the Blockchain system was meant to provide a new level of security for all our sensitive data but the misuse of it is what is creating a problem. Tokenization was used too easily in the creation of DeFI tokens that will non perform or to create a proof of ownership that does not have an intrinsic value. This is why a lot of the crashes at the end of 2021 and 2022 happened as there are so many non-performing projects that bring the whole market down with it.
Of course, the introduction and rise of Tokenization brought with it a lot of benefits for the DeFI Space as it opens up a whole new possibility and it’s up to us to use this technology in the right way. It provides a massive opportunity for artists and traditional asset owners to provide additional liquidity for their assets but how far can we go in this journey of tokenization? Are we better off holding a digital token of a real asset or just aiming for the real thing?
How far can we go?
The possibility behind Tokenization is pretty much anything can be tokenized and stored in a secure blockchain network, One of the newest trends of this is the Tokenization of Real World Assets like Real Estate which helps asset or fund owners raise capital more efficiently, and gives investors unprecedented access to private real estate investments, transparency, and liquidity. It involves the asset in this case Real Estate being fragmented into digital tokens and distributed equally amongst each investor.
These digital tokens are a good idea as long as the proof of ownership truly represents the asset after all that’s the main idea behind Tokenization. With this in mind, we can see more variations of this Tokenization of real-world assets such as gold or even stock derivatives. If we look closer at the NFT Space, it might not be as successful as it was in 2021 but it still manages to garner new communities for artists and creators alike to publish their creations.
“Everything will be tokenized and connected by a blockchain one day” — Fred Ehrsam, Co-Founder of Coinbase
This quote sums up the possibility that Tokenization holds on to our future and so far as the Blockchain network remains the most secure way to store data, this quote shouldn’t be a bad idea. If everything is tokenized and stored in a Blockchain, we are also protecting the security of those assets it represents for its holders and this will happen sooner than we expected. This is why the hype behind NFT and Digital Land was massive at one point in time.
The concern is more towards the intention behind the application of the technology than on how far we can go. If the intention is to create a secure way to store the ownership of the assets then it should be encouraged but if the intention is to create a duplicate version of the asset that is not backed by the real-world counterparts then it’s probably a cause of concern. These digital tokens should represent the real-world asset while in return the backup should be able to provide the intrinsic value needed for the community to hold these digital tokens and we can thank the concept of Tokenization for making it possible.
Tokenization is a wonderful concept that will bring better security into our daily activities and here in Nagaya, we hope that the new generation of tokenization could be adopted seamlessly by everyone. Nagaya in itself is the World’s First Hybrid Digital Asset that is backed by Gold to maintain its intrinsic value while creating sustainable growth in the long term. We understand the value that real asset like Gold brings and we hope that combining it with the enormous potential of the Blockchain Network should be able to provide value to all of you our holders. If you are interested to know more about Nagaya, you can visit our website at www.nagaya.co
Or you can talk to us at t.me/nagayaofficial