Are Cryptocurrency Investors Ready for Asset Tokenization?

29th June 2019 Off By binary
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For the last several years, cryptocurrency has been a topic of major focus. This interest includes niche crypto-centric communities and in the general population. The change is partially due to the massive growth of Bitcoin toward the end of 2017. Within the course of that year, prices jumped from $900 to nearly $20,000. To some, it was a sign of the legitimacy of cryptocurrency since so many people were buying into it and using it for everyday purchases. When prices fell, naysayers took it as a sign of the volatility of the currency. Since then, prices have stabilized. Now, cryptocurrency is more frequently used than ever before, attracting cryptocurrency investors back into the market. 

With cryptocurrency proponents finally feeling secure in their investments and ongoing usage, it’s worth wondering whether their perception of value in the blockchain can carry over to newer, even more, complex applications. Notably, we’re in the early stages of seeing the development of asset tokenization, which is the application of the blockchain for tokenizing both tangible and intangible assets.

For asset tokenization to work, it requires the full faith and activity from a majority of the population. Cryptocurrency investors will ultimately serve as the gateway for this public acceptance. In this role, they will become a potential barometer for the application’s legitimacy and force of persuasion for skeptics. 

The Basics of Asset Tokenization 

Before we explore this topic in full, we need to understand the basics of asset tokenization. It’s best to think of this as a kind of marriage of publicly traded stocks and blockchain-based exchanges. In publicly traded companies, authorities can issue fractional shares of ownership in the company.

These are sold in the form of “shares” whose value is calculated based on the percentage of ownership and the total value of the company. Under most conditions, any consumer can buy or sell these shares from and to other consumers. This concept is limited in scope. Only corporations can issue shares this way. And, they’re subject to an inordinate number of rules and regulations. 

Asset tokenization relies on the blockchain to conduct exchanges, almost immediately making it more secure and less susceptible to fraud. More importantly, it allows the distribution of fractional shares of ownership in practically anything. It could be a sole proprietorship, a partnership, a physical asset like a building, or even an intangible asset like the rights to intellectual property. Therefore, it has the potential to revolutionize many industries since it enables owners and creators to raise funds more easily. Also, it provides an alternative form of compensation and investment for interested parties. 

The Persuasion Problem For Cryptocurrency Investors

However, asset tokenization’s growth is limited by the number of people willing to accept it as a form of legitimate exchange. Fiat currency is money issued by a government that isn’t backed by a physical commodity. Instead, its value is based on the value people believe it has. Similarly, the value of a tokenized asset (at least one without a physical counterpart) will depend on the public’s belief in that fractional token’s value. Similarly, the economics of buying and selling these fractional shares of ownership will be based on substantial market participation.

One of the biggest challenges is persuading people to participate in the system. For business owners hoping to save capital early on by compensating employees in shares of ownership in the business, it means convincing employees of the value of this compensation.

For musicians wanting to be paid fairly for their creative work, it means convincing both audiences and producers to switch to an alternative system. In these small-scale cases, a meaningful presentation could be all it takes to persuade your audience. In the context of society at large, there needs to be a more significant change in public opinion. 

Using Cryptocurrency as a Bridge

Cryptocurrency could feasibly serve as a bridge connecting people who are relatively unfamiliar with the blockchain to the concept of asset tokenization. Currently, there are more than 32 million Bitcoin wallets set up. This is a substantive base of users that can generate meaningful traction in the price of the currency. Thanks to the volatility of the currency in the past, hundreds of millions of people understand what Bitcoin and other cryptocurrencies are (to a degree). And, they may now have enough faith in the system to see it as a form of legitimate currency. 

In this context, cryptocurrency investors are experts when it comes to blockchain-based exchanges. If they apply their enthusiasm and good faith to asset tokenization, they could represent a base of 32 million (or more) willing participants. Plus, they could serve as ambassadors to people who may otherwise struggle to understand asset tokenization and its value. Evangelists pushing for the public to understand the benefits of cryptocurrency should have little trouble transitioning to evangelize the benefits of asset tokenization. 

The Next Level of Cryptocurrency? 

It’s appropriate to think about asset tokenization as a natural extension of cryptocurrency. In some ways, any tokenized asset will function almost like a self-contained cryptocurrency. In addition to rallying behind a single, universal cryptocurrency, there would be an ecosystem of different forms of tokenized exchanges. This would be a kind of all-digital, universally translatable, and secure platform for bartering and compensation. 

There are some challenges for asset tokenization to overcome in addition to public persuasion. Notably, developing a tokenized asset would require the expertise of a blockchain developer. However, not all companies or creatives would have access to an expert or a platform through which they could develop it.

Additionally, there may be significant regulatory hurdles that follow. For example, will the SEC consider tokenized assets as securities or a form of currency? Bitcoin and other cryptocurrencies are facing similar scrutiny from regulatory agencies all over the world. Therefore, it’s unlikely to be a long-term problem. There is just a short-term ambiguity that may be hard to navigate. 

Again, one of the greatest advantages of asset tokenization is that it already draws from existing cryptocurrencies as a foundation. Regulatory agencies that draw up plans for how to regulate cryptocurrencies will have a much easier time developing new rules and regulations for digitally tokenized assets. It’s like they have a blueprint in place already. 

Prioritizing the Benefits of the Blockchain For Cryptocurrency Investors

Cryptocurrency and asset tokenization are inherently different concepts. Yet, they originate from the same important technology: the blockchain. And, it’s the blockchain that’s going to drive the future of economics and personal exchanges. Though cryptocurrencies will grow along their own trajectory, they’re also serving as our first introduction to the blockchain’s capabilities and advantages in full force. This is almost like a warmup to the full potential that the blockchain could bring. 

In that context, cryptocurrency investors are among the first advocates of truly revolutionary technology. They’re going to serve an important role in garnering public acceptance for future applications. If asset tokenization is going to take off, it’s going to require collaboration on the part of blockchain developers, company owners, consumers, and regulatory agencies to create a common agreement about the benefits of the system. Thanks to cryptocurrency, we’re already progressing in this direction.

 

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