Share
The process of tokenization involves the replacement of sensitive data with unique identification symbols, which retains all the important information about the data without compromising the security.
The main goal of tokenization is to minimize the amount of data a business needs to keep on hand, and it is currently considered as one of the best ways for businesses to increase their security measures while minimizing the cost per transaction while ensuring compliance with all the safety standards in the market along with the rules or regulations.
That’s just an overview about the process of tokenization, but in order to understand it in a better way, you have to know how it is used, why it is important and where it could be used.
What Is Tokenization?
Before we talk about anything else, you need to know what tokenization is.
The process of tokenization involves transforming or converting ownerships and rights of assets into digital forms, which means that you can convert indivisible assets into token forms with the help of tokenization.
With tokenization, sensitive data is exchanged for non-sensitive data, which is known as tokens, and that could be used in a database or internal system. You also have to keep in mind that tokens retain certain elements because of the original data that they carry, which is commonly in length or format, and those are used for uninterrupted business operations. When it comes to the original sensitive data, it is stored outside the internal systems of an organization.
Another thing about tokenization is that any data that’s tokenized becomes undecipherable, which means it is irreversible.
What Information Is Tokenized?
Most of the time, the information that’s tokenized includes social security numbers, bank account numbers, passport numbers, driver’s license number, credit card numbers, debit card number, addresses, telephone number, date of birth, gender, race and other important or any personal information.
3 Different Types Of Tokens
There are three different types of tokens, which are:
Security Tokens
Security tokens are the ones that are responsible for validating the ownership of a particular asset or rights.
They are basically the digital representation of any asset that’s already there and the best thing about them is that they are extremely secure along with the benefit that they could be programmed to be extremely unique and have features that would be suited to our needs.
Platform Tokens
Another type of token is the platform token, which is used in the blockchain in order to deliver decentralized applications.
Utility Tokens
On a Blockchain Solutions network, utility tokens are the most basic ones considering that they are used to access the services, power consensus programs, pay transaction fees and vote for new blockchain developments.
They could also be used as governance tokens or could be utilized in the entire decision-making process of DAOs.
Fungible Tokens And Non-Fungible Tokens
Along with the classifications that we listed above, there are different types of assets that could be converted into tokens, which include:
Fungible Tokens
Fungible tokens are allowed to be replicated or replaced, which means that they are not unique, but once fungible tokens are converted into tokens, you can divide them into fractional units.
Non-Fungible Tokens
Non-fungible tokens are not allowed to be broken down into fractions, however when they are converted into non-fungible tokens you can have full or partial ownership of them and because non-fungible tokens are unique, you can use them to track the history of ownership on the blockchain. This automatically ensures that no one can replicate the token. They automatically start the process by providing an immutable digital signature, which plays a huge role in helping to determine the uniqueness of the underlying asset.
4 Advantages Of Tokenization
It is important to know the advantages that are brought by tokenization so you can properly have an overview on what it could bring on the table. To help you out in knowing what the advantages of tokenization are, we have listed them down below:
Asset Divisibility
One of the best reasons why tokenization is used in blockchain is because it opens up assets to more people and the divisibility makes it more accessible.
Better Tracking
Another benefit is that tokenization offers a broader geographic reach as blockchain is inherently global in nature and anyone with a computer or web browser is allowed to interact and keep track of the asset no matter where they are.
Faster Transactions And Save Money
Because tokenization eliminates the process of lawyers, banks, escrow accounts and even having brokers, you are saving a lot of time and money at the same time. The entire process that happens with this is also allowed at any point of the day, making it extremely accessible to anyone.
Transparent
In a blockchain development service, all the transactions are transparent and they are available to all computers that are interacting within the chain, which means that you can know who the owner of the asset was before you bought it.
This increases the trust amongst investors in a huge way as they know where it came from and how long it was with the previous owner.
Why Is Tokenization Important?
The main goal of tokenization is to protect the sensitive data while preserving its business utility making it different from encryption, where sensitive data is modified and is stored with methods that do not allow its continued use for business purposes. Also, encrypted numbers are allowed to be decrypted with the right key, but with tokens, they are not allowed to be reversed as there is no significant mathematical relationship between the token and the original number.
The Future Of Tokenization
Blockchain offers a big advantage when it comes to decentralization.
Remember, blockchain offers amazing advantages when it comes to decentralization and that could help out a lot in optimizing a lot of processes, which means that the chain of intermediaries is going to be brought on ground level. Also, tokenized assets are capable of representing complete or part ownership rights to other assets, which includes digital artwork, real estate and many more.
Tokenization could also be used to divide investments of properties and assets in multiple tokens, and as a result of this, small or medium sized investors could discover prolific opportunities in the investment market without having to enter investment funds.
For the technology itself, things just get better.
The thing about tokenization is that it is currently used in blockchain based projects, particularly in the healthcare sector, where tokenization of health records, pharma supplies and many other health related data is showing amazing promises. Tokenization could also be used in applications that are developed for financial payments, asset management, insurance, collectibles, data management and many more.
When it comes to answering the question “is tokenization the future?”The answer depends on time, abilities of developers and ideas that are brought upon by the people. However, the way things are going right now, we can say that tokenization is indeed the future.
Conclusion
It is pretty clear that the future of tokenization is going to be bright, however that will only be possible if the existing challenges that are faced in finding reliable solutions are solved. Remember, tokenization has a massive scope for limitless possibilities across multiple sectors, but because it is still a new concept, major improvements are needed, particularly around the legal regulations or in improving trust in tokenization.
