What does “TOKENIZE” a really mean?
Tokenization Cryptocurrency Assets
Tokenization is a new word, which describes a new way to raise money using cryptocurrency, during which the a project creator creates tokens which represent a share in a property or real estate asset, and investors trade fiat (currency like dollars or euros) or cryptocurrency (like bitcoin) for these Tokens to secure partial ownership.
Fractional Ownership
This type of ownership is also called fractional ownership, which isn’t new, but the process which creates the fractional ownership is new. This method of creating fractional ownership is believed to have begun in 2017 and one source I read stated there were 7 companies doing real estate Tokenization in 2018 and now there are almost 100 companies providing platforms for not only real estate Tokenization, but also the Tokenization of Art.
Tokenization of Assets
While real estate represents the worlds largest asset class, Art represents another type of asset with previously untapped equity. Like expensive real estate expensive art has a small pool of potential buyers amongst the world’s millionaires and billionaires, who are scattered across the earth. But now the famous art by Andy Warhol and Monet have been tokenized for fractional ownership, along with major real estate deals and the world is taking notice. One of the beauties of Tokenization is that it allows the owners to sell fractions of the art, but by retaining the majority or plurality of the tokens they still control the art asset. The owners of the Andy Warhol painting have a multi-million dollar asset, but before now, no way to access that cash. Now they can Tokenize and sell a portion of its ownership through Tokenization and access a few million dollars in equity, while still controlling the asset through their majority token ownership. This is a remarkable development.
In a nutshell, tokenization is one way to Securitize real assets.
Securize Assets
To securitize an asset means to divide it into pieces that you can sell to investors just like individual securities or stock shares of a traditional company. In a similar way, to “tokenize” an asset is to divide it into pieces, or “tokens”, that represent a piece of the underlying asset like tradition securities. These tokens are therefore often called “security tokens”.
Security Tokens
These tokens are secured through one of the core characteristics of blockchains; #“immutability” the unalterability of the ledger of a blockchain. Plus these tokens are tradeable via cryptocurrency exchanges or other Trading Systems (ATS). There are a few blockchain platforms which have the capacity to offer the non-fungible tokens needed for this enterprise and offer SEC compliant tokens. Steem is one, via the Steem Engine side chain.
Why is this important?
Real estate is the largest asset class in the world. It also is the class with the most locked up equity, as the number of singular buyers for expensive properties which cost over a million dollars is small. Then it gets smaller when you consider properties over 10, 20, 30 and 100 million dollars USD. Then narrow the field further by imposing geographic and political limitations and you have eliminated even more potential buyers.
##Tokenization
Tokenization is a new way to trade beyond geographic and political barriers, as properties for sale on cryptocurrency exchanges allow a millionaire in China to buy a building in Los Angeles, Rome and in Brasília. This type cross border commerce creates a much larger pool of potential millionaire buyers, which is a essential to increasing sales of these expensive assets. Then taken a step further by providing fractional ownership, which reduces the amount of capital they have at risk and this further increases the pool of potential buyers to participate in this asset sale investment. Combine this sales and marketing with the increased security and easy verification provided by the transparency of the five core characteristics of a decentralized block chain along with smart contracts, and now you both larger pools of investors and a trust less platform needed to ignite this form of commerce.
Summary
Lastly, as if the above points are not exciting enough I have one more point which I think is even more exciting. Tokenization has the potential to remove the accredited investor limitation from investing in high priced securities and a 100 million dollar asset can be cut up into 100 million pieces or tokens allowing people to purchase pieces of the asset for a dollar, which increases the number of potential buyers from 200-300 millionaires to 300 million people in the US alone. Think about that for a second. Anyone with a few dollars of disposable income could become an investor in the Multi-Million dollar real estate projects or a fractional owner of a famous work of art like the Mona Lisa.
Consider this:
One of the most important things Amazon did was create country wide markets for products.
For example; Products made in small towns of 10,000 people sudden had their potential pool of buyers increase from the people in their town: 10,000 people to everyone in America: 300 million people. If you are unsure if this marketing concept drives sales you can look at Amazon, which is the second company in history to reach a market cap of one trillion.
Are you getting excited yet?
It’s increasing the pool of potential buyers.
It unlocks billions of dollars of previously unreachable equity in expensive art and real estate. It’s creating a transparent, verifiable, trust less platform for commerce where no one entity has an advantage and their are no profit consuming middleman or intermediaries.
It’s democratizing Participation in investments in expensive real estate and art investments.
The future of commerce was the World Wide Web because of expanding markets, now it’s world wide Web 2.0, with decentralized social media and decentralized commerce with smart contracts and Tokenization playing a big role. I suggest you learn about these things and participate, as fortunes and legacies can be made, plus true freedom can be achieved.
Stay thirsty for knowledge my friends!
Foot note leofinance
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