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Beginners Tokenization Guide

What are digital assets?

What are digital assets ? Unlike cryptocurrencies, digital assets do not have a blockchain network of their own. In this way, security in transactions and registration of possession depends on the decentralized database of some existing network. There is nothing to prevent the use of centralized networks for issuing and controlling digital assets. Airline miles from loyalty programs are a good example of a centralized solution that works very well. However, blockchain is the ideal solution for the digital asset holder looking for a transparent system. In this sense, transactions can be carried out without dependence on an organizing entity.

source: Bitcoin Market

They are intangible resources; images, videos, pictures, cryptocurrencies and a multitude of assets that do not physically exist.

Centralized Digital Assets: Which Require

But it is the digital assets that generate value, the most invested in the financial market.

As close as they are, digital assets, cryptocurrencies and tokens differ in several ways.

In general, a digital asset is a non-tangible asset that is created, traded and stored digitally.

Cryptocurrencies and tokens are specific sub-categories of digital assets that use advanced encryption techniques to:

  • certify the authenticity of these assets
  • eliminate the possibility of forgery or double spending.

Both tokens and cryptocurrencies are cryptoassets which, in turn, are part of the group of digital assets.

Knowing this, the next step is to understand what cryptocurrencies are.

What are cryptocurrencies?

What are cryptocurrencies?

Cryptocurrencies are native assets of a blockchain network that can be used as a medium for transactions and for storing value.

They are decentralized, meaning they are issued directly by the blockchain protocol they run on, not by specific banks or governments.

In many cases, cryptocurrencies are not only used to pay transaction fees on the network, but also to encourage users to keep the cryptocurrency network secure.

But then what is token?

What is token?

Tokens are basically units of value that blockchain-based organizations or projects build on top of existing blockchain networks.

While they often share deep compatibility with the cryptocurrencies on this network, they are an entirely different class of digital asset.

Cryptocurrencies are the native asset of a specific blockchain protocol, while tokens are created by platforms that are based on these blockchains.

For example, the native token of the Ethereum blockchain is ether (ETH). But as much as ether is Ethereum’s native cryptocurrency, there are many other different tokens that also utilize the Ethereum blockchain.

These tokens can serve a multitude of different purposes.

They can be used to reward users with fees and perks, a small piece of the right to an asset that could appreciate in value, participation in companies and access to specific services.

Now that you know all these classifications, it is much easier to understand the difference between cryptocurrency and token!

What is the difference between cryptocurrency and token?

It is important to understand the difference between cryptocurrency and token, terms that many people confuse, but that present fundamental distinctions.

When he created Bitcoin and Blockchain (2009), Satoshi Nakamoto never imagined that his invention would revolutionize the world economy.

A peer-to-peer transaction system that works in a totally transparent and decentralized way that has given rise to countless other applications.

Cryptocurrencies were the first applications of blockchain and some of these coins allowed the creation of indexed tokens backed by real assets.

With the trend of this market, many people still have doubts about what cryptocurrencies are and how they separate themselves from asset tokens.

Basically a cryptocurrency is native and works on its own blockchain network, while the token works on the blockchain network of a cryptocurrency.

For example, Bitcoin operates and runs on the Bitcoin blockchain, Ether operates and runs on the Ethereum blockchain, NEO operates and runs on the NEO blockchain.

The tokens, in turn, are created on existing blockchains.

In fact, thanks to the creation and facilitation of smart contracts, the most common blockchain platform for creating tokens is Ethereum.

A curiosity is that the tokens built on the Ethereum platform are known as ERC-20 tokens.

Do you know what Tokenization is?

If you still don’t know what tokenization is, don’t worry, there’s still time.

Asset tokenization is transforming the way investments are made and offering security, agility, transparency and accessibility to transactions.

We have prepared this complete guide for you to understand everything you need about asset tokenization.

So far you’ve seen:

  • What are digital assets
  • What are cryptocurrencies
  • What is Token
  • What is the difference between cryptocurrencies and tokens

But there is still much more to learn:

  • what are assets
  • What is asset token
  • What is the tokenization process
  • What is Blockchain
  • What are Smart Contracts
  • Which companies can create tokens

With this information, you will have all the knowledge about what tokenization is and how it works.

What is tokenization?

What is tokenization?

Tokenization is the process of breaking a real asset into digital fractions so that they can be easily traded.

This practice is changing the way the world looks at investments and benefits both investors and asset owners.

To understand how this process works, let’s start with what assets are.

What are assets?

The first step in understanding what tokenization is is knowing what assets are and which assets can be tokenized.

Generally speaking, assets are anything that has value and can be traded and converted into cash.

Assets are often divided into categories.

There are personal assets, which are possessions of a subject or a family (such as land or property ). And there are also commercial assets, which cooperate with the development of a company (such as machinery or patents).

Most assets can be tokenized and, in this way, facilitated their trading.

A tokenized asset is an asset that is digitally represented in parts in the form of tokens.

So, let’s understand a little more about tokens in the next section.

What is Asset Token?

It is impossible to understand what tokenization is without knowing what an asset token is, how it works and what it is for.

Tokens are digital representations of parts of an asset. They can represent both tangible assets (such as real estate developments and cars) and intangible assets (such as patents and professional careers).

It’s easier to understand how tokens work from an example. So, imagine that there is a property valued at R$1 million and it is fragmented into 10,000 tokens.

In this case, each token is worth R$100 and you decide to purchase one of them. Imagine, then, that this property is later sold for R$3 million. Within this example, your token would be worth R$300 and you would receive your return.

Tokens serve to bring advantages to both issuers and investors, increasing asset liquidity, providing access to high-performance assets and reducing costs.

Having said all that, let’s now know more about how this process works.

What is the tokenization process?

Knowing the whole process, it is easier for you to understand once and for all what tokenization is.

Many people who already carry out this type of investment have not yet mastered exactly the way in which an asset is represented digitally and can be traded in the form of tokens.

And the entire tokenization process happens in 4 main steps.

1st step: Structuring the Token

At this moment, the tokenizer (BLOCKBR, for example) evaluates the asset that an issuer intends to tokenize to verify its existence and if it meets certain requirements.

In addition, a legal contract is developed that establishes all the rights of the token holders.

It may be that, even in this first process, a SCROW account is opened, as, in some cases, it is responsible for the receipts involved in the investment.

2nd stage: Issuance of Tokens

It is in the second process that the answer to what is tokenization is.

After all, it is at this stage that Smart Contracts are instantly created within a secure and encrypted network called Blockchain.

This is also where the tokenizer’s technology team configures the entire token, which comes to exist within the Ethereum network’s Blockchain.

It is time to digitally represent the asset in a secure and immutable way.

3rd stage: Listing or Distribution

Once the tokens are ready to be distributed, they are publicly offered within a platform.

So investors can finally get the amount of tokens they want from the amount of capital they choose to apply.

Then, when the offering is traded, the investor receives rights to the asset represented by the token.

4th stage: Governance

The previous steps explain what tokenization is, the fourth step concerns investor control over the tokens.

After acquiring the tokens, investors are entitled to a return on their investments.

In addition, each investor can follow the project of which the token is part and contact the issuers to ask any questions.

Now that you already know the tokenization process, let’s understand a little more about two elements that are fundamental parts for it to occur.

What is Blockchain?

What is Blockchain?

It is only possible to understand what tokenization is, basically knowing what Blockchain is!

To begin with, it is important to say that blockchain is a set of technologies and different studies (from different areas) that were organized to work towards a common goal.

During its emergence, it served to resolve the issue of “double spending” and revolutionized the digital universe.

After all, when we send a file to someone else, it doesn’t leave our devices, it’s just a copy that goes to the recipient.

With blockchain, this doesn’t happen, once you send a token, for example, it leaves your wallet and becomes available in the recipient’s wallet.

How it works?

Think of blockchain as a ledger that records all the information needed to transact tokens.

This data is written in a block with a certain date and time. Whenever new data are validated and approved, new blocks are formed and added in an interconnected way to the previous one.

Thus, a blockchain is formed. And that blockchain is immutable, it can’t be tampered with.

How does Blockchain ensure the security of tokens?

An important fact about Blockchain is that it is completely decentralized, which means that there is no central data storage server, but several servers around the world, which connect to each other.

They use cloud computing to process, gather and store all blocks of information. Due to this decentralization of the system, all the information contained therein has layers of protection that will make it difficult to invade data.

Investing in tokenization is secure both because the token data on the Blockchain cannot be changed and because the processing, organization and storage of the data is decentralized.

However, there are other factors that make Blockchain important, such as its ability to revolutionize the way business is done.

Since transactions carried out within the blockchain take place without the interference of intermediaries, they do not involve the payment of high operational fees and, consequently, make negotiations more viable.

So you don’t depend on companies or governments to keep it running as it is decentralized. In addition, Blockchain offers transparency and agility for transactions and works 24 hours a day, every day of the week.

And, to ensure that all transactions are duly carried out by the agreed parties, Blockchain still relies on the technology of Smart Contracts.

What are Smart Contracts

Smart Contracts are the last important concept to definitely understand what tokenization is!

Also known as smart contracts, they are programming codes, which have incorporated some types of pre-programmed contractual clauses into the blockchain.

In this way, they guarantee validation and compliance with the rules.

Basically, Smart Contracts embed contract clauses into computers.

Thus, whenever an agreement is digitally executed by the parties involved, the terms are automatically validated and cannot be changed.

Using smart contracts is a great strategy to reduce costs involved in negotiations.

Furthermore, they can always be viewed by stakeholders; they only start to operate after being proven; are private and all clauses must be explicit to avoid divergence of interpretations.

All of this makes them a key part of ensuring the legal certainty required for investments in tokens.

What is the life cycle of Smart Contracts?

The life cycle of Smart Contracts begins with programming, in which the rules that must be complied with within a given negotiation are established. These rules are validated by validating agents before smart contracts start operating.

After that, they connect with internal systems, such as banks, or external ones, such as account balances or stock prices, that are related to their operations so that they can act in a pre-programmed way when certain triggers are activated.

Smart Contacts wait for external triggers to assess pre-defined conditions. So, every time there is a trigger that corresponds to the rules inscribed in its clauses, Smart Contracts execute themselves and fulfill their function, streamlining processes that would need to be operated mechanically.

It is important to note that Smart Contracts also strengthen transparency in negotiations and are created in order to provide data for compliance and accountability!

Now, what do you think about starting to be inspired by some sectors that already tokenize their assets?

What can be tokenized?

Asset tokenization has several advantages. Everything can be tokenized but not everything is worth tokenizing. Today, businesses from the most varied segments are already looking for tokenization as a solution both in security and financial efficiency for greater profitability and distribution.

Health area

The security that tokenization guarantees to information has increasingly contributed to companies in the health sector, sometimes as financial backing and anticipating receivables, or even using tokens to confirm queries and exams, thus avoiding problems with fraud.

In addition, in the not-too-distant future, tokenization will allow patients’ clinical history to be always updated and be accessible in consultations from anywhere in the world, thanks to Blockchain.

agribusiness

Asset tokenization happens within the Blockchain. For the agribusiness sector , it can represent the possibility of tokenizing the rights to a crop of vegetables or grains and even the production of a herd.

Tokenization also allows livestock and agriculture businesses to track their entire production chain, having greater control, security and efficiency over their processes.

sports market

The sports market is part of the sectors that tokenize and is one of the ones that has taken great advantage of it.

Some football clubs have already used tokens to capture investments much faster and offer returns to investors (who are often fans).

In addition, we could observe that the tokens are also being used as part of the payment in the signing of players, as happened with the star Lionel Messi when he signed with Paris Saint-Germain.

Logistics

The logistics industry usually involves many stages and companies in its processes. Therefore, something that could be bureaucratic and susceptible to a series of problems becomes much safer and more efficient with the use of Blockchain.

Through it, it is possible to unify the tracking system in just one network. In addition, companies that participate in the delivery process are able to search for all kinds of tokenized information in a single source and decide important issues, such as cargo, route and freight price.

All this through a consensus, which is registered and validated by the Smart Contracts.

Participation in companies in all sectors

The tokens that represent the participation in companies are the Equity Tokens

We can understand Equity Tokens as a kind of traditional stock assets, which represent a stake in certain underlying companies. With this type of tokens, you are entitled to a share of the profits and voting rights when deciding on the future of the company.

The difference between Equity Tokens and traditional shares lies in the fact that shares are registered in a database along with a paper certificate, even if scanned. The tokens are registered on the Blockchain.

Despite having an even more promising future, it is undeniable that tokenization is already a reality in Brazil and in the world, even more so with the examples we have given.

Real estate, mining, energy,

The creativity behind the tokens represents a good story to be told, but of course with the necessary guarantees and ballasts so that everything goes perfectly well and the investor is not harmed through speculative offers and not at all transparent. These 3 sectors represent a diversity within the universe of tokenization, and every day tokens are created, such as stable coins, others that are substitutes for investment funds and all the acronyms of existing credits on the market.

Now you can be confident that you know everything about tokenization: what it is, what technologies are involved, and how the whole process works and which sectors to draw inspiration from!

So, are you ready to tokenize your asset ?

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