Blockchain is a shared, immutable ledger that facilitates the process of recording transactions and tracking assets in a business network. An asset can be tangible (a house, car, cash, land) or intangible (intellectual property, patents, copyrights, branding). Virtually anything of value can be tracked and traded on a blockchain network, reducing risk and cutting costs for all involved.
Business runs on information. The faster it’s received and the more accurate it is, the better. Blockchain is ideal for delivering that information because it provides immediate, shared and completely transparent information stored on an immutable ledger that can be accessed only by permissioned network members. A blockchain network can track orders, payments, accounts, production and much more. And because members share a single view of the truth, you can see all details of a transaction end to end, giving you greater confidence, as well as new efficiencies and opportunities.
What needs to change: Operations often waste effort on duplicate record keeping and third-party validations. Record-keeping systems can be vulnerable to fraud and cyberattacks. Limited transparency can slow data verification. And with the arrival of IoT, transaction volumes have exploded. All of this slows business, drains the bottom line — and means we need a better way. Enter blockchain.
With blockchain, as a member of a members-only network, you can rest assured that you are receiving accurate and timely data, and that your confidential blockchain records will be shared only with network members to whom you have specifically granted access.
Consensus on data accuracy is required from all network members, and all validated transactions are immutable because they are recorded permanently. No one, not even a system administrator, can delete a transaction.
With a distributed ledger that is shared among members of a network, time-wasting record reconciliations are eliminated. And to speed transactions, a set of rules — called a smart contract — can be stored on the blockchain and executed automatically.
The broad term for this high-tech concept is “asset tokenisation,” which makes sense, because it’s all about converting existing assets (tangible and intangible) to manageable, digitally traceable tokens, not dissimilar to Bitcoin and other cryptocurrencies. Each token in this system represents fractional ownership in a tradable asset.
Much like an initial public offering (IPO) in the stock world or an initial coin offering (ICO), the business owner, asset distributor, or creative innovator in charge would oversee an initial security token offering (STO). They would control the trading volume of the token in question, as well as an initial price for each token. Investors active on the blockchain would be able to trade these fractional shares like they would any cryptocurrency. In some cases, sufficient fractional shares would be exchangeable for a real asset.
One of the biggest breakthroughs the blockchain would provide is an immediate and convenient way to distribute the ownership of complex assets, like businesses. Ownership is an important concept in a thriving economy. This gives people the chance to grow their wealth by buying and holding assets. Stocks already allow consumers the chance to acquire partial ownership in up-and-coming companies. Asset tokenisation, however, could open the door to even more complex asset types — buildings, vehicles, or equipment.
Asset owners can also benefit from finding a way to distribute accountability in some cases. For example, in a car accident, liability can be complex to pinpoint due to the variety of factors that play into determining “fault.” Drivers, owners, insurance companies, weather conditions, traffic conditions, and more can play into the resolution of a case.
Figure 2- Common Digital Assets
Asset tokenization will also simplify how exchanges and transactions play out. This gives consumers more options for both straightforward purchases and transfers of ownership. For example, asset tokenization instantly makes previously illiquid investments more liquid; it’s much easier to distribute ownership of a piece of factory equipment when you can split it a practically infinite number of times and keep track of all those micro-transactions with minimal financial management.
Of course, “simplification” is a long-term vision. Blockchain ledgers don’t appear instantaneously and do require expert oversight. But once created, instated, and popularly accepted, almost any purchase, trade, investment, or exchange will become simpler.
Tokens also can revolutionise creators of intangible or hard-to-define assets, like photos, music, and other creative works. Imagine, as an example, how a change in the distribution and control of ownership could affect the music industry. A composer or performer could produce a body of work, like an album, and tokenise that work to willing investors and participants. Listeners, producers, and others would be able to front money to creators, giving them more upfront cash for their work, and simultaneously giving themselves a stake in what could be a very popular piece of media. If it’s used in a movie or is downloaded frequently enough, every stakeholder would be able to claim partial benefits.
This setup makes it easier for creators to get paid for what they create and still retain more control over how it’s used. It seizes some power from industry titans, democratising the industry, and gives consumers more freedom to support the artists they want. For everyone involved, this system is amazingly beneficial.
Employee-owned companies are becoming more popular, and asset tokenisation could make the system more approachable for small- to mid-sized companies that aren’t interested in incorporating. The idea is to compensate employees in equity in the company. This would incentivise them to work harder for the business’s success and rewarding them directly for their efforts.
Asset tokenisation would make this structure available without the need for an IPO or a complicated ownership distribution model. Instead, employees could work for discrete “tokens” of ownership that could be sold or cashed in later for a profit.
Even though fractional ownership has been a long-standing concept in the form of stocks for publicly traded companies, asset tokenisation still has the possibility of disrupting the world of investments, enabling investors to target a more diverse range of opportunities, and giving entrepreneurs and inventors more financial chances than ever before.
For starters, asset tokenisation wouldn’t be limited to formally incorporated businesses; it could be open to sole proprietorships and small businesses, or to individuals and organisations as well. In fact, it could change how we think about “corporate ownership” in the first place. Because it’s so accessible and so liquid, it gives more entrepreneurs the opportunity to attract funding, which could fuel a technological and innovative revolution.
So, when is this groundbreaking, revolutionary technology going to develop and be available for the people who need it most? It’s hard to say, considering the blockchain is a complex technology whose role hasn’t formally been solidified. The infrastructure for blockchain as it relates to cryptocurrency is well-established by now. There’s a distinct possibility it could only be a few years until it’s used for wider purposes. However, some industries and applications may face additional years-long delays due to new regulatory hurdles or talent shortages.
With all these inherent advantages, it’s clear that blockchain-based ownership isn’t just a gimmick. It’s also clear that it isn’t a simple improvement to our existing systems; it’s a practical necessity that will become more important as the years pass. It may be some time before asset tokenisation becomes understood and accepted in the mainstream. It has the potential to improve our lives in multiple areas and solve problems that have plagued entrepreneurs for decades. Moreover, with smart contracts the usage and buying and selling of digital assets can highly secured, resilient, and effective.
