blockchain system: it’s not just a token value

In its most abstract form, tokenization converts value stored in a tangible or intangible object into a token that can generally be manipulated along a distributed ledger technology (DLT)/blockchain system. Simply put, tokenization can turn almost any asset, real or virtual, into a digital token and enables digital transfer, ownership and storage without the need for a central third party/middleman….

A digital token can thus be described as software with a unique asset reference, properties and/or legal rights attached. Even though similar software can be created, the fact that a token works on DLT/blockchain differentiates it from other digitization methods. Using a DLT/blockchain to create a digital token allows different businesses to collaborate, which, in turn, enables the aggregation of otherwise fragmented information into a single digital token. In addition, all parties can update the information transparently and verify its accuracy.

Tokenization enables fracturing, thereby lowering barriers to entry and boosting access to new markets for smaller players. Increased market participation may result in additional market liquidity.

However, the larger number of market participants would necessitate a shift from bilateral to multilateral trading. Although cumbersome in the traditional world, DLT supports smart contracts and atomic swaps, enabling secure and near-instantaneous settlement of even complex multiparty transactions.

Excerpt from “Tokenization of Assets”, Ernst & Young


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