Tokenized real-world assets are transforming the way businesses and individuals invest, own, and interact with physical assets, and there’s a growing consensus that this technology will ultimately reshape the future of finance. It’s a trend that has gotten a lot of support in recent years, with the likes of BlackRock , JPMorgan , and even Apple throwing their weight behind the concept. The term was initially associated with digital assets, such as cryptocurrencies, but these days it has expanded to cover almost anything - be it real estate, art, carbon credits, and more. Despite the recent momentum, tokenization is not a new concept. Tokens have been around for almost as long as civilization itself, being a representation of something with value, or perhaps a promise. Something like a one-cent coin is a token, and so is your driving license, regardless of whether you have a physical one in your wallet or a digital version stored on your iPhone. Tokens are use to represent ownership of certain assets, provide access rights, and prove our identities. The first tokens It’s not clear when tokens were first used, but one of the earliest examples has to be shells, which were used as a form of money in many parts of the world during the rise of the earliest civilizations. These objects can be polished, carved, and used to create jewelry, and their natural beauty is likely what saw them transformed into a store of value and, consequently, a medium of exchange. Shells have a lot of advantages, being small, scarce, and extremely durable, which means they’re easy to carry and store, and unlikely to get damaged easily. Just like metal coins, in fact. As such, they represented a big improvement in barter, which could be extremely challenging due to the need to find someone willing to exchange what you have for something that you need. A handful of shells made barter obsolete, transforming ancient economies. What’s especially curious about shells is that, as a form of currency, it was entirely decentralized. The value of shells was based on a regional consensus, and the fact it took time to find, polish, and carve shells to make them more valuable put a limit on the available supply. Each finished shell was essentially a “proof-of-work” if that term sounds familiar. Blockchain makes tokens digital Fast-forward thousands of years and we have a new kind of proof-of-work in Bitcoin , the original cryptocurrency that helped to spark our renewed interest in tokenization. Digital tokenization kicked off with the emergence of Bitcoin in 2009. As the world’s first decentralized digital currency, it also introduced the wonderful technology called blockchain which now serves as the foundation of modern-day digital tokens. While Bitcoin didn’t tokenize anything itself, it paved the way for the creation of more functional blockchains like Ethereum , which introduced smart contracts, paving the way for more versatile tokens that can represent almost anything. Ethereum quickly gave birth to ERC-20 tokens, which are digital assets that can perform various functions, and the idea caught on with the explosion of “ initial coin offerings ” or ICOs, where crypto projects would raise funds by selling tokens that represented a kind of stake or provide some sort of utility. Unfortunately, many ICOs turned out to be scams or poorly planned, and with thousands of investors losing money, regulators moved to crack down on these projects. The first tokenized assets emerge However, while ICOs quickly died down, the idea of tokenization began to take off as people realized that these digital tokens could represent more than just cryptocurrency. It soon dawned on innovators that almost anything could be “tokenized”, or represented as a token that lives on the blockchain, where they can be traded much more easily. One of the most obvious applications of tokenization is real estate. That’s because physical properties are very expensive to buy, with a typical house in the U.S. for example selling for hundreds of thousands of dollars. Most people don’t have that kind of money and they’re forced to take out a mortgage to buy a home. As a result, the market for real estate is highly illiquid, and it can take weeks, months, or even years to sell a home. Tokenization transforms real estate as it allows for fractional ownership. Simply put, a home can be divided into 100,000 tokens that each represent a small share in that property, so they can be sold individually. It means someone can become a part-owner of a home, making real estate a viable investment even if they don’t have the money to buy the property outright. This idea has gotten traction, and platforms like Blocksquare and RealT have built platforms where investors can purchase tokens of various rental properties and trade them on an open, decentralized marketplace. Each token can generate a passive income because it earns a share of the rental income generated by the property it represents. A more intriguing use case for tokenization is carbon credits, which make it possible for companies to offset their carbon emissions by acquiring tokens that represent a certain amount of CO2 that has been removed from the atmosphere. Tokenized carbon credits provide a simple way for companies to buy and trade these CO2 offsets, while the underlying blockchain provides additional value due to its transparency. Each carbon credit can be traced to its source, ensuring its legitimacy, and this is a key value proposition of platforms like KlimaDAO . The rise of tokenized economies In the future, entire economies will likely become tokenized. One project pursuing this idea is Unit Network , which makes it possible for anyone to create and manage a tokenized economy, even without coding skills. It provides simple-to-use tools for creating and managing digital tokens that can be used for a wide range of purposes, such as fundraising and rewarding loyal customers. Unit Network provides the example of “city coins”, which can be used to empower local communities and businesses. For instance, a “Bangkok Coin” or a “London Coin” could be created for use by residents of those cities, enabling them to invest in local projects and services, and also use it as a means of exchange. According to Unit Network, each city coin would be backed by its native UNIT token, ensuring its price stability, though the value would be influenced by the overall health of that city’s economy. Residents of Bangkok could buy Bangkok Coins to support a more collaborative economy, fund different projects important to them, and share resources. Such a token would likely create a positive feedback loop, where the more it is used, the more its value increases, benefiting the city’s community while creating a sense of purpose and unity. Unit Network says its platform can be used to create almost any kind of digital token. For example, a small business could create its tokens as a way to raise funds for a new project, with token holders given some kind of benefit for investing in the initiative. Entrepreneurs can also use its tools to create tokens that represent things such as gold, art, and land. Regulatory challenges persist One challenge that the tokenization industry needs to overcome is the regulatory questions that continue to persist. In many countries, these digital assets are labeled as "security tokens” and have been subject to strict regulatory rules that limit their usefulness. Some countries, such as Switzerland and Singapore have moved quickly to create “token-friendly” legal frameworks that encourage the development of tokenized projects. Yet other countries, such as the U.S., have resorted to harsh crackdowns while they try to work out how to regulate such assets. Fortunately, with the pro-crypto President Donald Trump back in the White House, it’s hoped that the U.S. may soon develop a much more welcoming regulatory framework for digital tokens. In the meantime, there is optimism from a number of projects that have stepped up to try and allay the fears of regulators. For instance, Kalp Network has created a secure and heavily regulated environment for institutional investors to participate in the token economy. With its Layer-1 network, investors can trade digital assets with confidence, knowing that they meet all of the necessary legal obligations of the territories they operate within. The future is bright The evolution of tokenization is gathering momentum, and what began with relatively simple cryptocurrencies is now being applied to almost any kind of real-world asset. As the economy becomes increasingly tokenized, it will make everything from art and real estate to stocks and shares and even small businesses more accessible investments, boosting liquidity. It will create a modern economy that fits the digital world in which anyone can participate, leading to a more equitable future where everyone can access financial opportunities. Tokenization is moving into the mainstream because it makes every kind of asset more accessible, enabling fractional ownership for assets that were previously always highly illiquid. It also streamlines transactions, reduces costs, and improves transparency, while giving businesses an alternative way to raise funds - and these add up to some compelling advantages over the old way of doing business. In the future, we can expect to see tokens become more widespread, even in traditional finance, leading to the creation of more innovative financial products and more lucrative investment opportunities. Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
