What is a token
A token is a unit of account that is used to represent a digital balance in a certain asset. Tokens are recorded in a database based on blockchain technology, and they are accessed through special applications using electronic signature schemes.
What types of tokens are there
– Equity tokens – represent the company’s shares.
– Utility tokens – reflect some value within the business model of the online platform (reputation, points for certain actions, game currency).
– Asset-backed tokens – digital obligations for real goods or services (kilograms of carrots, hours of work of the builder, etc.).
How can a token be provided
Only asset-backed tokens can be directly secured. In this case, the token is a digital counterpart of a real (physical) asset or service. For example, one token can be equated to one square meter of living space or the ability to go to the cinema for one session. The guarantor of converting the token into collateral is the organization itself, which stores goods or provides services.
What is asset tokenization
Tokenization is the process of transforming accounting and asset management, in which each asset is represented as a digital token. The essence of tokenization is to create digital analogues for real values in order to quickly and safely work with them. For example, the bakery owner creates an electronic accounting system in which he issues digital obligations for buns – tokens. Having a fairly good reputation, the bakery owner can pre-sell buns by selling tokens on trading floors on the Internet. In this case, any holder of tokens can come to the bakery and exchange one token for one bun.
How is a token different from cryptocurrency
Unlike cryptocurrencies, tokens can be issued both centrally (under the control of one organization) and decentralized (under the control of a predetermined algorithm). Processing and acceptance of transactions can also be performed centrally (all servers are controlled by one organization). Token pricing may depend not only on the balance of supply and demand, but also on additional aspects (linking to an external asset, conditional rules of issue or interest). In addition, unlike cryptocurrencies, the token does not have its own blockchain.
How to buy tokens
Tokens can be bought through online trading services (exchanges and exchangers), or in personal transactions (the buyer and seller agree personally). The token trading process itself is identical to the cryptocurrency trading process. In addition, token issuers often embed the ability to purchase tokens through traditional electronic means of payment in the web pages of their projects.
Where to store tokens
In the processes of transfer and storage, tokens are similar to cryptocurrencies. For this, special wallets are used that implement the storage and processing of keys, as well as the formation and signing of transactions. Typically, these applications are part of the tokenization platform infrastructure.
What are the benefits of tokenization
– Accelerates the processes of trade, since it does not require the transfer of real assets and paperwork for property rights.
– Increases the security of storage and transmission by accounting for transactions based on blockchain technology.
– It removes the need for trust in intermediaries, since their participation can be described at the level of a smart contract or they can be excluded from the chain.
– Increases the functionality of the infrastructure, expands the capabilities of the platform by connecting additional modules (multi-level authentication, creating invoices, regular payments, recharge cards).
– Improves usability, since many platform features can be integrated into the user interface of a mobile application.
What are the advantages of blockchain in the tokenization process
– Organization of a reliable database (ensuring verification of the integrity and reliability of the data of each subsequent state of the system).
– Decentralization of the point of failure (processing and acceptance of the transaction by multiple independent servers).
– Organization of a reliable audit (full verification of the correctness of the entire history of changes on the platform by the auditor).
What are the risks and problems of tokenization
– Private keys of users can be lost or stolen by hackers, which is impossible to predict and insure.
– Ensuring confidentiality in public blockchains is a difficult task, since their data must be open for the transaction verification process.
– The difficult task of scaling in a decentralized accounting system, since a decentralized database has a strict limit on throughput.