We hear the phrase, the tokenization of everything, quite often world of cryptocurrency and blockchain. This is something that gets thrown about on the Internet, almost to the point where it loses its meaning.
However, this is a transition that is highly crucial for the future of humanity. Our entire financial and economic system is being disrupted and this is at the core of it.
When we dive into the reasons, there are some things that stand out. This is more than just a bunch of programmers playing around with code. It is also much more involved than just the Internet of Money.
What we are dealing with is real world problems being solves.
In this article we will cover the 3 reasons why the tokenization of everything is the future.
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1. Bits Faster Than Atoms
There is an inherent slowness when looking at the real world. It really stands out when compared to the digital realm.
It faster to move bits around than atoms.
Physical objects are slow and clunky. That is why we do not use banknotes for most of our transactions. We see costs go up and things get rather expensive. We need more people, physical space, and steps in the process. The digital world has none of this.
Essentially, the tokenization of everything is going to make the real world more like the Internet. This brings certain characteristics to the table.
- free
- open source
- cross border
- available 24 hours per day
- open to anyone
- exponential in its growth
- automated
The fastest growing corporations are those tied to the Internet. Digital platforms have growth rates that exceed those that have to deal with physical stores as an example.
2. Democratize Investments
Capital is the foundation of all progress. It is required for innovation and advancement. Even at the most basic level, people want to be paid for their time. This is why they have jobs.
This means capital is necessary. With newly formed entities, moving into newer ground, investment is often the path to funding. Someone has to be willing to put up money and take the risk on success. This applies to everything, even if opening up another office for the law firm.
At present, the equity and debt markets are basically a closed system. Most of the planet cannot access them on the funding side and we know a small percentage of the global population owns any of these assets.
This exhibits out exclusionary the process is.
Tokenization turns this around completely. Since we are dealing with open access, investments can come from anywhere. Crowdfunding is put on steroids. The idea of building it then finding a market is reversed. With the community concept, we see how the product or service can be catered to the audience even before it is created.
We are also going to see trillions of dollars in capital available. This will shift the epicenter of investing and funding. No longer will it be major financial institutions that dominate the landscape.
Applications have the ability to bring people together. We are looking at the "Amazon of financial services". This company took buyers and merged then with products they wanted. The same will be true in finance. Decentralized finance (DeFi) holds enormous potential for this reason.
3. Trillions Unlocked
Traditional finance, TradFi, can often lack liquidity. There are many assets which have value (or equity) yet it is difficult to access. Here we see massive inefficiencies in the system. It is a layer of friction that need not exist.
Tokenization solves this problem. Consider assets such as real estate, art, or even goodwill. All of these are difficult to sell, requiring a premium.
Now picture all of them at tokens being traded on markets just like stocks. This creates a system whereby anything of value can be treated in such a manner. Since there is value, the tokens can easily be posted to a DApp as collateral. This start to compound the economic impact even more.
Real estate is one of the largest markets in the world, with an estimate worth of $300 trillion. Much of that is locked up, in a non-liquid state.
Tokenization could free up a significant amount of this value while moving risk to those willing to take it on.
In Conclusion
The tokenization of everything is the future simply because it makes asset more value and can provide a tremendous amount of capital in the economy. As technology races ahead, funding keeps getting more expensive. This means the system that finances this has to evolve.
We are watching the limits of what banks and other financial institutions can do. They are encountering things such as balance sheet constraints. This is hindering the ability to grow things, causing a slowing around the globe.
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