Those who are familiar with different cryptocurrencies and the crypto trading space must have heard about tokenization. It is one of the vital concepts in the field of cryptocurrency. Blockchain is a technology that has revolutionized the entire landscape of digital currencies, which was once unimaginable. The future evolution of cryptocurrencies, especially relying on the support and advancement of blockchain technology will open new doors for digital currencies. However, currently, tokenization is a concept that has been gaining unexpected popularity within a short period. Anyone wanting to have a digital representation of their assets on the blockchain must have come across this vital concept. This is already changing the way individuals view and interact with assets in digital form. Therefore, this news blog tries to lay down the notion of tokenization in the simplest way possible to help people better understand its use and why this concept is gaining more and more traction.

Knowing Tokenization

Tokenization is a simple procedure within the parameters of cryptocurrencies that helps an individual convert their right of owning a real-life asset into a digital token stored on a blockchain. While it may sound like a complicated component, it is not. Instead of owning an asset physically, tokenizing the asset on a blockchain would indicate their digital ownership. It is basically a digitized token that verifies an individual's ownership of an asset in a digital format. Experts say that this is an extraordinary way of representing one's owned assets digitally that is securely stored on a blockchain. When an individual decides to tokenize their practical assets, it allows them to be more accessible and liquid. As a result, tokenization is providing interesting opportunities for many industries. These sectors include real estate, collectibles and arts, natural resources, commodities, and infrastructure.

A big advantage of tokenization is that any large and inaccessible asset can be broken down into smaller units, making them more affordable and easily accessible for a wider group to trade in and take part in the ownership of these assets. For instance, with tokenization, an individual can own a share of a famous art without any need to have the whole amount upfront.

How It Works

After understanding the concept behind tokenization, it is time to know about how it works. Generally, there are three steps that work in the background of tokenizing an asset. The first step is establishing the digital token. Creating a digital token is a vital task as it will represent the underlying asset. These tokens are created by taking advantage of different blockchain platforms, such as Polkadot or Ethereum. These platforms are made in such a way that they can offer the required infrastructure to issue and monitor the tokens. The core infrastructure of the platform allows the tokens to be unique, enabling them to be trade-friendly, transferable, and sold like any other digitized asset.

Now that the token has been made, it is important to connect it to the respective asset. This connection will ensure that a digital token is the identification of an individual possessing a specific asset. This linking procedure involves making safe and transparent proof on the blockchain about the digital token embodying the ownership of a particular asset. This proof needs to have all the important details about the asset. The last step of tokenization comprises managing the different components of the asset on the blockchain. Crypto enthusiasts need to understand that when the linkage between an asset and a token is formed, it naturally becomes a part of the blockchain environment. So, the blockchain will have every piece of evidence regarding any transaction associated with a token from this point onwards. It will guarantee the safety, transparency, and immutability. If at any time, the ownership changes, the same will be automatically updated on the blockchain. So, there is no chance of tampering with any evidence connected with the asset when it has been tokenized.

Why Is It Gaining Popularity

It is evident that in the past couple of years, tokenization has become significantly popular among crypto enthusiasts. The reason behind it is threefold. The first big factor is the enhanced liquidity. Without any question, tokenization can enhance the liquidity of any digitally owned asset. While conventionally the selling or purchasing of a high-value asset was an expensive and lengthier process, tokenization makes this process a more affordable and less time-consuming one. Since tokenization enables a high-value asset to be divided into smaller units, average traders can have the opportunity to own a part of these assets. Finally, since the whole tokenization system is made under the umbrella of blockchain technology, every transaction of tokenized assets is more secure than ever.