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ETH · 18w

Unchained: Why Tokenizing Assets May Not Be All It’s Cracked Up to Be - For many, tokenization is the way of the future. But is tokenizing always the best option?

As the cryptocurrency markets continue to evolve, some analysts believe that tokenized assets are the real future of blockchain technology. They say that the days of the ICO-fundraising free-for-all will soon be gone, replaced by a market that is primarily backed by real-world assets.

Some go so far as to say that we are approaching an era when everything will be tokenized–ownership rights for everything will be recorded, stored and traded on a blockchain network. The idea is that this kind of a system will be far more efficient, less expensive, and clear–disputes over ownership rights will be eliminated, and everyone will be happy. (Right?)

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But is this kind of a future as bright as it seems? There are some voices in the financial community who believe that tokenization may not be all it’s cracked up to be. In order to understand the kinds of situations that may not benefit from tokenization, let’s first establish what tokenization really means, and why the practice has been so widely lauded.

What is Tokenization, Really?

Law, tax, and compliance group MME defines tokenization as: “the process of digitally storing the property rights to a thing of value (asset) on a blockchain or distributed ledger, so that ownership can be transferred via the blockchain’s protocol.”

According to Dr. Stephanie Hurder, partner and founding economist at Prysm Group, tokens have two fundamental requirements: first, that “the rights to a thing of value (an asset) are stored digitally on a blockchain or a distributed ledger,” and second, “the rights can be transferred via the blockchain or ledger’s protocol.”

Essentially, the paper contracts that represent ownership of things like stocks, houses, cars, and gold become digital tokens that can be recorded on some sort of distributed ledger. These tokens can be transferred using the ledger’s protocol; the entity who controls the token controls the ownership rig...

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