Blockchain, Token and Tokenization

By Raffaella Aghemo on ALTCOIN MAGAZINETo talk about blockchain technology today and not to talk about token or tokenization, is to exclude the basis of any future speculation.I would, therefore, like to clarify what a token is, or rather what exactly tokenization means.First of all, we need to take a step back: on the protocol of distributed registers that is the blockchain technology, we distinguish two types of values: cryptocurrencies (payment tokens), such as Bitcoins or Eths, to cite the most famous and widespread, also called native tokens, as they are physiologically inserted into a blockchain, which represents the “currency” of exchange for participants, within the same; tokens, which represent “tokens” or digital assets built on blockchain technology through tools such as smart contracts.When we talk about tokenization, we mean the possibility of representing the value of a certain good or a certain action in many tokens, to store or exchange them on blockchain. The tokenization is, therefore, the conversion of the rights of an asset into a digital token recorded on a blockchain, where the real good and the token are connected by an intelligent contract. Tokenization is a revolutionary new process, in which real-world goods become tokens, moving to a digital system on blockchain. Investors can “liquefy” the resources of the real world while maintaining the characteristics of the asset. Tokenization increases portfolio diversification and spreads risk as investors can now co-own multiple assets simultaneously.There are two aspects, therefore, the transformation of what is a “value” (e.g. a property, a patent, a copyright, etc.) into a token or the transformation of an “action” or a “work” into a token (e.g. reward systems already widely used by companies such as remuneration for plastic recycling or for the miles traveled using non-polluting means of transport).The tokens are therefore liquid, immutable proof of a right, fractionable and exchangeable.The blockchain, created in response to the 2008 banking crisis, represented an alternative payment system, in which each address was like an IBAN, with which crypto coins could be transferred between the participants.Later on, the flexibility of this decentralized system was noted, which could also be used to record transactions that did not necessarily involve transfers of cryptocurrencies.An example of the second evolution of decentralized technology was the social network, based on blockchain technology, born in 2016, Steemit, where all the typical activities of a social network, like, comment and post become transactions and where like can generate fees payable by the native Steem cryptocurrency.The token, therefore, has the security and transferability features of the crypto coin but is not native and internal to the blockchain but represents a real good, a “real” right, but external and existing outside the blockchain system.Therefore, “tokenizing” means “splitting” an asset, a right, to sell individual shares or portions to investors, to make the economy more liquid and functional, as well as accessible to small savers. The tokens, as in this case, are called fungible, because every single token has the same value, gives the same right, and is interchangeable.Differently, tokens associated with unique, non-exchangeable rights, such as one’s own identity document, are infungible. Another example, until today, was represented by a work of art, not divisible and whose purchase value could not be separated. A work of art generates two types of values, the economic value in itself, of the work as such unique and unrepeatable, and the value of its economic exploitation, which derives from the income derived from its exhibition.The painting 14 Small Electric Chairs, a two-meter-high painting by the famous visual artist Andy Warhol, was symbolically auctioned on the blockchain Maecenas platform, through conversion into digital certificates based on Ethereum that allows buyers to buy portions or fractions of the work, using cryptocurrencies ETH, BTC or Maecenas, the native ART token! In practice, if in a traditional auction, the person who places the highest bid wins and receives the lot after paying the amount of the bid, here have been bids digital shares of the work: the winners will not, therefore, receive a “physical” piece of the painting, nor will they come into possession of the canvas in its entirety. The owner will remain the owner of the majority of the shares, while the remainder will be distributed among the winners, who, guaranteed by the certainty and immutability of the certified information, literally possess “pieces” of the work, represented by certificates of digital ownership with characteristics of absolute security. They can either boast, as connoisseurs and art lovers, to own a digital fraction of a work of art, or consider this “piece”, an investment, able to increase in value in the future!To give a schematic definition of the tokens, they are divided into five categories:- Payment tokens: Crypto-currencies (intrinsic value properties. These tokens do not represent a third party value and take their price from market forces as a standard product).In the real world, they are equivalent to money.- Utility tokens: Right to purchase goods or services of the platform. (“coupons” for platform services). In the real world, they are equivalent to vouchers.- Asset tokens: Right to ownership of a tangible or intangible asset or right to conversion of an asset.In the real world, they are equivalent to gold and silver.- Equity token: Shares of a property registered on blockchain (property of the underlying company, sharing its fortunes and failures). In the real world, they are equivalent to shares.- Security tokens: They represent a security, a share in the wealth or profit expectation created by the efforts of a third party and draw their value from the success or failure of that party. The ownership of the underlying company is not created.In the real world, they are equivalent to mutual funds.The tokenization represents the main way for a near and concrete “circular economy”. The linear economic model “take-make-dispose”, which is based on the accessibility to large quantities of resources and energy, is less and less in line with today’s reality, and will necessarily have to look at an “economy designed to be able to regenerate itself”, according to the definition of the Ellen MacArthur Foundation.All Rights ReservedRaffaella Aghemo, LawyerAltcoin Magazine, Token and Tokenization was originally published in ALTCOIN MAGAZINE on Medium, where people are continuing the conversation by highlighting and responding to this story.
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Author: Raffaella Aghemo