Tokenizing All The Things
We hear a lot about how blockchain technology facilitates tokenization of different kinds of assets, but what exactly does this mean? To understand this, we have to first understand exactly what money is.
Money has many roles, such as a store of value, and a way of accounting for things. In everyday use though, money is our means of exchange - and this makes it very different from other forms of wealth such as property.
The money we use every day used to be pegged to the value of scarce resources, usually gold. However for many years this connection, the gold standard, has been removed in most developed economies - so now the value of money comes from the policies of the national reserve banks, combined with the network effects of global usage. A dollar is worth one dollar, or 0.85 euros, because we all accept that this is so.
We call this fiat money: something - like a coin or bank note - made legal tender by government decree.
The world has other assets, with real intrinsic value - precious metals, fuel, food property, works of art, gemstones… But these are not easy to trade and exchange, to physically transfer or to subdivide. In many cases they are not fungible either, an important distinction in law: One bar of gold can substitute for any other and the value remains identical, but for apartments or artwork this does not apply. And even fungible bullion has to be stored securely, transported, and insured. We say that such assets are “illiquid”, because their value cannot easily flow, from one place or owner to another. It would be impractical or costly to transact with such things in everyday life.
But what if we could unlock that value, if we could fractionalize it, transparently and securely? Then people who are rich in assets but poor in cash could become economically active, and they wouldn’t necessarily have to sell up and liquidate those precious assets either.