Understanding Digital Assets. The Power of Tokens


As we progress into a more digital age and long-distance transfer of wealth or assets becomes more necessary, we inevitable develop better ways of doing it. We have gone through many transformations of this process, from Gold to notes and now, potentially, tokenization.

 In the United States, the currency went from Gold representing labor to Fiat money representing Gold to fiat money representing future social liability and tax obligations to fiat representing the ability to purchase oil to Fiat being completely decoupled from labor. The issue here, each step reduces the trust within the system, erodes the confidence of nations, and thus weakens it.

Block chain technology, allowing proof of ownership of tokenized assets reduces the distrust inherent in the system. A token can represent nothing, just what someone perceives it to be, or it can be attached to a physical asset and represent exclusive ownership of that asset.

Consider the example of REIT on average broker site. When you buy the REIT you submit a request to robin hood to purchase the REIT who requests the stock in name only from Depository Trust Company who records the purchase. So, the broker never has physical control of the stock and neither do you. You have the right to sell or buy shares but you never have completely ownership of the note, such as the ability to move that share to a new exchange or offer in another open market. This enables a dangerous condition in which multiple copies can be sold of an asset, such as how in the futures market for silver and gold, there are 174 and about 88 derivative contracts open for each physical ounce available at market. This creates distortions in the market and reduces trust as who is left holding the bag at the end?

Tokenization solves this problem, as the holder of the token, you are the owner and can do with it as you please and you can send it to anyone able to receive said token, In addition Tokenization creates a system in which fractions of shares of the overall unit can be sold. Consider the sale of a house, the house could be represented by 1 token. A group of 5 investors may want to purchase the house so they pool money and each give 20% of the final cost. That 1 token can be divided into fifths and each person receives .20 House token. This is a simplified example but that .20 house token would represent a right to 20% of profits, and voting rights for the home. A person could then sell half there 20% to another, everyone in the network could see that it happened and that person and an additional person would now be entitled to 10%. The possibilities are endless.

Undoubtably there will be a lot of fraud as this gets rolling. People selling the equivalent of snake oil but long term, this revolution stands to streamline and democratize the way business and finance is done throughout the world.

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