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Is Tokenization the Future of Digital Asset Investing?

Estimated reading time: 3 minutes, 6 seconds

Many inside the cryptocurrency investing space believe we’re on the cusp of an evolution of sorts. This transformation could impact every possible asset type in the investing world, from traditional assets like stocks and bonds to alternatives like real estate and equipment leases.

A breakthrough technology, the tokenization of assets, could drastically change how we invest.

Tokenization is converting all or part of an asset into a token that can be stored, moved and recorded on the blockchain. But how would this change how we invest? Actually, the concept is quite simple: expand the fungibility of assets like commodities, fiat currencies and stocks to all asset classes. Particular assets are considered “fungible” if they can be exchanged for identical goods of equal value. But if taken a step further, tokenization moves beyond fungibility into a new type of barter system, where multilateral transactions take place with and between a variety of assets.

Sure, you can essentially trade real estate for cash in our current financial and investing systems. Just liquidate the real estate holding, and you have cash. But can you trade that property for private equity valued at the same amount? Technically, perhaps you could, but do you want to go through the current hurdles to do so? Proponents of asset tokenization say, “Absolutely not!” Tokens (the digital representations of the assets) would enable the owner to barter exchange any variety of holdings.

Tokenization enthusiasts seek to vastly improve the current methods for trading investment assets by utilizing blockchain technology. By residing wholly on the blockchain, tokenized assets become liquid and easily tradable. It’s similar to how commodity exchanges have largely moved away from physical paper for electronic transactions, except without the overhead.

Furthermore, all tokenized assets have the potential to be divisible by a dozen or many more decimal points, lowering the high-price barriers for those just entering the investment market. This could, therefore, enable all assets on the blockchain to allow fractional ownership. In doing so, fundraising is easier, and a greater portion of the population could invest in attractive opportunities.

Other potential benefits of tokenization include assets with embedded voting, trading of intangible goods like copyrights and patents, much faster transfers of ownership and even the possibility of removing the need for fiat currency.

Whether it’s to make non-fungible assets like real estate fungible or to revolutionize how we transact, many are anticipating a technological revolution sooner rather than later—all because of tokenization of assets. Proponents of tokenization believe our reliance on fiat currency is a broken way of life. For example, they believe the concept of “value” shouldn’t immediately be relative to an item’s price according to the dollar.

There are still a variety of problems to be solved before tokenization is commonplace. Indeed, there are many legal hurdles and changes needed to enable digital transfers of some of these physical assets. There’s also a lingering question about the computing power required for blockchain transactions. But foremost, the general reputation of cryptocurrency, and by association the blockchain, must improve before tokenization is more widely accepted.

Please understand that this article is intended to be merely a brief overview of tokenization’s potential impact on investing. It does not intend to take a deep dive into the mechanics nor the regulatory hurdles of tokenizing assets.

Are we truly on the precipice of digitizing and tokenizing any investment asset imaginable? Only time will tell!

If you are considering digital assets of any kind as an investment, please speak with your team of professionals. They will guide you toward the asset(s) right for your portfolio and investing needs. But when you’re ready—and whether it’s digital assets, private lending, private equity, institutional investing, any other alternative and traditional asset held on our platform—Kingdom Trust is here to help make your investing dreams reality!

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