Tokenization: features, principles and benefits for business

Tokenization: how can it help you

08 Jan, 2020 Endy Callahan

The main issue with assets on the financial market is their physical transfer. However, the transfer of ownership makes a physical transfer of assets irrelevant. Asset tokenization has been used for quite some time now, but blockchain technology revolutionized the previous process.

Features of modern tokenization

Previously, tokenization was understood as a technology that increases the security of electronic payments through data encryption. It does not require a buyer and a seller to exchange personal information. All you need is a unique token code.

Blockchain makes tokenization even more reliable and secure. To put it simply, it is a transfer of right to an electronic token. Physical assets can be tokenized using a blockchain-based system that maintains records and transactions. It provides much-needed security and confidentiality. This highly transparent system makes no room for compromising transactions or canceling them.

Basic principles of tokenizations

The main principle of tokenization lies in the replacement of real data or assets with encrypted cryptocurrency codes. Users cannot extract any personal information directly from the token, instead, it serves as a connecting link to details without disclosing them.

For example, bank card tokenization allows you not to share your personal information with the seller or intermediaries during payment. Information about the card and its owner is replaced by an alphanumeric value that is inherent in a particular token. It is formed using mathematical formulas or by randomly generating code. Attackers will not have any access to information that can be used against you.

How business can use tokenization?

Trading systems. For example, oil trade companies. Usually, they have to deal with a paper trail, keep records, file contracts all by themselves, which is time-consuming and unreliable. Blockchain technology leaves this outdated approach behind. Tokens will be a very useful tool in contractual relationships and help to take into account past and future counterparties.

Registration of licenses. Eliminating copyright infringement is a huge task. Blockchain-based solution can help to find a way around illegal distribution that undermines sales statistics. It will provide storage for up-to-date reliable data. The proper upcoming solution will require unlocking the copyright content and ensuring that payment will be automatically distributed among the owners.

Storage and smart contracts. Tokenization of precious metals will give additional secure protection layer for investors. Owners of paper certificates, on the other hand, will not have such privilege.

Tokenization brings a whole lot more to the table compared to outdated paper-based asset accounting. The biggest advantages are high level of security, safety and convenience. That is why many analysts confidently say that blockchain is the future. On our portal, you will find a lot of information about tokens and cryptocurrencies, their features, types and advantages.