Asset tokenization

Image: Silvia Faustino Saes


The tokenization of assets opens up new investment and financing opportunities, but these assets cannot be allowed to break the monopolies of national states and become uncontrolled currencies.

What the f*** is this?! Tokenization is a process that transforms a good or right into a digital representation. Called a digital token, it is registered and traded on the network blockchain, a technology for storing data in blocks distributed across a network. It uses them to validate any changes made.

A physical element, for example a work of art, when digitized, receives a token assigned to it. This work is registered with a unique alphanumeric key. This relationship between the token and the asset (way of maintaining wealth) means it has shared ownership or value. Cool huh?

When you attach, for example, a document to your email/WhatsApp and send it to someone else, you generate a copy. This property of yours will leave your file and reach someone else's cell phone or computer, sharing it.

When there is tokenization and storage in a blockchain, if you send a property to someone else, its registration leaves your digital command and goes to someone else's, exactly as it happens in the physical world. It's as if you had given someone, for example, part or all of your valuable work of art.

This tokenization process makes digital records have this same property in the transfer process. They are no longer just part of the original property and become the property of the recipient(s).

These tokens can represent any goods, rights and entitlement expectations. Among others, they are real estate, trade receivables, judicial receivables, coins, automobiles, commodities, financial securities.

Tokenization allows the division and sharing of these assets into smaller parts, generally allowing for free trading. It is done instantly, without crossing borders and with negligible transaction costs!

It increases the possibility of investments, reduces negotiation distances and is more accessible when divided. With tokenization, for example, you can invest in pieces of art without having the money to buy the entire work.

Then, the happy admirer of the work of art invests in a fraction of a painting. It becomes part of your asset portfolio. If this entire painting is valued, it receives the value of the appreciation proportional to the fraction owned, if sold.

The process facilitates access to more complex assets, generally restricted to “qualified investors” – in Brazil, those with more than one million reais. Shares the illusion of self-serving opinion makers.

They announce another benefit: greater liquidity, because the network blockchain reduces borders, making access to investment global. It also reduces the cost of transactions by cutting out intermediaries. It is the paradise imagined by neoliberals!

This advance of anti-statism is sponsored by blockchain 2.0. It is a term to describe different stages of evolution and application of technology blockchain.

O blockchain 1.0 was mainly characterized by the development and deployment of the first generation with a main focus on creating a decentralized digital currency, such as Bitcoin. Its main applications were international value transfers, using digital currencies as a means of avoiding taxation.

The functionalities of blockchain 1.0 were relatively limited. Its focus was solely on transferring value between network participants in a secure way, with anonymity and decentralization before governments and financial institutions.

O blockchain 2.0 represents an expansion of the technology's use cases beyond cryptocurrencies, encompassing a variety of decentralized applications (DApps) and smart contracts. These enable the automation of agreements and transactions across a variety of sectors.

Therefore, the blockchain 2.0 enables the tokenization of real-world assets such as real estate, works of art and commodities, transforming them into digital tokens. They can be traded and transferred internationally at low cost.

It seeks to improve interoperability between different block chains, allowing your networks to communicate and share data. It promotes decentralized governance, where decisions about the direction of the network are made by the user community rather than a centralized government authority.

Therefore, it represents a significant expansion of the technology's potential blockchain, going beyond cryptocurrencies. It opens up new possibilities for decentralized applications and innovation across a variety of industries.

Smart Contracts [smart contracts in English] are self-executing computer programs. They are designed to automatically execute, verify and enforce the terms of a contract when predefined conditions are met. These contracts are executed in a blockchain, as a result, they are immutable, transparent and decentralized.

The idea behind “smart contracts” is to automate contract negotiation and execution processes, eliminating the need for intermediaries or trusted third parties. They are written in specific programming languages ​​and allow you to define the conditions, logic and actions performed automatically when certain events occur.

For example, a smart contract can be used in a property purchase and sale transaction. The parties involved would encode the terms of the agreement into the smart contract, including the purchase price, payment terms, and each party's obligations.

When all conditions are met, such as full payment of the purchase price, the smart contract would automatically transfer ownership of the property to the buyer and payment to the seller.

Smart contracts have the potential for a variety of applications in various areas including finance, real estate, supply chain, healthcare, etc. They reduce costs and eliminate the need for intermediaries. However, they are only as good as the code capable of implementing them and, as a result, they can be prone to errors or failures if not developed and tested correctly.

They are one of the main applications of blockchain 2.0 in finance. They allow for the automation of agreements and transactions and the reduction of processing time. They are used in loans peer-to-peer, insurance, financial derivatives, etc.

Platforms based on blockchain 2.0 are being used to facilitate through crowdfunding and collective financing of projects and companies. They offer direct access to investors from around the world and use smart contracts to automate the fundraising and distribution process.

They manage digital assets, such as cryptocurrencies, security tokens and other digital assets. Trading platforms, digital wallets and custody services, based on blockchain, all are being developed to facilitate the purchase, sale, storage and management of these assets.

Ultimately, asset tokenization is the process of representing traditional physical or financial assets as digital tokens in a blockchain. It is the conversion of real-world assets such as real estate, works of art, commodities, securities and others, in digital tokens that can be traded, transferred and stored efficiently and securely on a network blockchain.

When an asset is tokenized, it is divided into smaller units, each represented by a digital token on the blockchain. These tokens can be easily transferred between owners, traded on secondary markets, and even fractionalized into smaller pieces, allowing investors with different budgets to participate in the ownership of these assets.

Asset tokenization opens up new investment and financing opportunities for a wide range of ways to originate and maintain wealth. However, it presents regulatory issues to be considered and adequately addressed by national States: they cannot allow their monopolies on weapons and currency issuance to be broken without control!

*Fernando Nogueira da Costa He is a full professor at the Institute of Economics at Unicamp. Author, among other books, of Brazil of banks (EDUSP). []

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