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The Impact of Tokenization: How Much Will it Affect Businesses?

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By Olumide Akinlaja - - 5 Mins Read
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Featured | rc.xyz NFT gallery/Unsplash
Physical crypto coins
Featured | rc.xyz NFT gallery/Unsplash

Tokenization started as a means of improving payment system security. Companies and individuals realized they could reduce data breach risk by substituting unique tokens for sensitive information like credit card numbers. This idea swiftly went beyond payments to produce tokenization of assets.

Today, tokenization is already causing waves in several sectors, and over the next five years, its influence should become considerably more important. An industry study projects that from 2021 to 2026, the worldwide tokenization market might rise at a compound annual growth rate (CAGR) of 19.0%, reaching a total value of $5.6 billion by 2026.

So, what can the business industry expect? We explore how tokenization will shape the business landscape in this article.

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Boosting Liquidity and Access

Tokenization is set to make assets more liquid. Traditional assets like real estate, art, and private equity are often hard to sell quickly. Tokenization changes that by converting these assets into digital tokens that can be traded easily on secondary markets.

Tokenization also opens up investment opportunities for a broader audience. By breaking down high-value assets into smaller and affordable tokens, more people can invest. This makes the financial system more inclusive, allowing even small-time investors to own a piece of valuable assets.

Enhanced Security

One of the strongest points of tokenization is its capacity to provide improved security. Fundamentally, tokenization depends on blockchain technology—which is known for its strong security features. Every tokenized asset is entered on a transparent, immutable ledger maintained on a blockchain. This implies that every transaction is recorded in a way that cannot be changed or manipulated, therefore drastically lowering the fraud risk.

Tokenization of assets also embraces smart contracts, self-executing agreements with the terms of the agreement directly entered into code. These smart contracts eliminate middlemen by automating various tasks, therefore guaranteeing that transactions are executed exactly as agreed upon. Since the terms are enforced automatically, this not only simplifies procedures but also provides an additional degree of protection.

Transparency 

Transparency is another major benefit of tokenization. Because all transactions are recorded on the blockchain, they can be easily verified by anyone with access to the network. This openness builds trust among investors and stakeholders, as they can see the entire transaction history of an asset. This level of transparency is often lacking in traditional asset management systems, where information can be opaque and hard to access.

Transforming Various Sectors

Tokenizing isn't limited to finances. It will influence several sectors. Tokenization can simplify real estate transactions, cut expenses, and replace middlemen in terms of speed. Faster closing times and lower fees resulting from this help buyers and sellers alike.

Tokenization lets artists sell fractional ownership of their creations, therefore generating quick money while maintaining partial ownership in the art world. Those who enjoy art can make investments in items they couldn’t have otherwise afforded. The music business also stands to gain as artists tokenize their work to get direct support from fans and retain more of their earnings.

Wrapping Up

Powered by blockchain technology, tokenization has evolved significantly, creating new opportunities across various domains. The next five years are crucial for the mainstream adoption of tokenization, which can streamline operations, cut costs, and open new revenue streams.

Resources:

  1. https://www.marketsandmarkets.com/Market-Reports/tokenization-market-.
  2. https://www.coindesk.com/business/2024/04/18/tokenization-growth-depends-on-developing-blockchain-powered-secondary-markets-moodys/
  3. https://www.investopedia.com/terms/s/smart-contracts.asp
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