Despite last year’s slack in demand for digital currency, the future of cryptocurrency remains promising — particularly as a secure, decentralized way to exchange currency for goods and services.
But one of the most interesting developments in the blockchain world is the emergence of asset tokenization: the process of using Blockchain to distribute and track ownership of real-world assets. The idea here is to use the distributed ledger of a blockchain to securely record ownership or partial ownership of an asset — like shares of a company. In theory, you could create a company that uses the blockchain to distribute payments in the form of partial ownership of the company itself. Contributors could then choose to exchange that partial ownership for another form of currency, or hold it to see if it increases in value (like you would a share of stock).
This is the premise behind eShares, a digital asset ownership management and marketplace for technology companies. eShares’ partner network owns thousands of high-profile domain names and a patent that allow for fractionalized ownership of domain assets (and the resulting communities they foster) by contributing with content marketing, UX design and software development. The patent and process allows for contributor payment in the form of blockchain-backed ERC tokens that represent an ownership stake in their respective domain names.
In time, these and similar organizations could become wholly-autonomous, representing microeconomies where individuals can exchange valuable products and services for fractional ownership in the organization. So how soon could this become a reality, and what makes it such a powerful system?
These are some of the most important benefits to a system of asset tokenization:
· Security. One of the blockchain’s greatest strengths is its imperviousness to external tampering. It’s virtually impossible to forge a transaction on a public ledger, since doing so would require taking control of more than half the devices on a given network. This would make payment processing much more secure, and give organization owners and contributors alike more confidence in their transactions.
· Employee ownership. While there are some arguments against the notion of fostering employee-owned businesses, there are many benefits to this arrangement — for both employees and owners. Paying contributors with fractional ownership in the organization they’re contributing to incentivizes them to do more for that organization. The better they perform for the company, the more valuable their shares will become (and the more shares they’ll earn simultaneously).
· Options for limited funding. The fractional ownership model also presents a viable option to entrepreneurs who might otherwise be stuck without employees due to limited funding. Rather than paying the team building your business with cash, you could pay them in fractional ownership in the company, which serves as a currency all its own.
· True autonomy. Another prospective benefit is the “true” autonomy of the organizations created for this process. Ideally, an entrepreneur could purchase a domain for a given function and establish rules for how fractional ownership is to be distributed, how value is to be exchanged, and how people can contribute. Once the setup is complete, contributors can take charge of operations, and the company can operate with minimal oversight or need for financial management.
· Cost savings. Blockchain-based currency transactions tend to be cheaper than their traditional financial counterparts, especially on a large enough scale. This would be minimal compared to other benefits, but could still save a company significant money over the course of the business’s development.
There are limitless potential applications for this system, as well. Nearly any organization that relies on contributions of work or value from individual users can benefit from the autonomy that blockchain can provide. These are some of the most notable areas for potential development:
· Software development, design, and content marketing. Functioning almost like an agency, an autonomous organization could allow software developers, graphic designers, and writers to meet specs as requested by paying clients, or contribute materials that otherwise boost the value of the company, in exchange for fractional ownership.
· Other creative works and intellectual property. Any type of creative work or intellectual property, including stock photos or music to be used in videos, could be similarly tokenized.
· Real estate and other real assets. Asset tokens can feasibly apply to any business focusing on real assets, like investment properties; here, the fractional ownership could be in a specific property (like an apartment building) or the company overall.
· Almost any equity interest. Any company could find a use to tokenize its equity ownership, especially as a way to raise funds. There’ s no ceiling to the creative potential in leveraging this technology.
Key Challenges for the Future
There are some potential challenges to overcome in the near future, however.
· Regulatory hurdles and consumer protections. Everything related to finances on the blockchain is new territory for politicians and economists to consider. Owning asset tokens as fractional shares of a company wouldn’t quite be like owning equity in the company, and wouldn’t quite be like getting paid in a traditional form of currency. Instead, it’s a kind of middle ground, and middle grounds are hard to regulate. Some countries, like China, have taken a firm stance against the use of cryptocurrency, so it’s likely they’d have a similarly strict stance against asset tokenization. Other countries will need to develop some form of consumer protections to prevent fraud and ensure contributors understand what they’re getting into when they work for fractional ownership.
· Liquidity and true value. New autonomous organizations may face the same problems that other new ICOs or penny stocks have faced in the past: low liquidity. The value of each asset token would likely be determined by the market, much like stocks are in mainstream finance, but without any reliable existing models, the price would likely be volatile. Add to that some degree of difficulty in selling your equity for cash, and you might be stuck with a form of payment that’s either hard to trade for cash or unreliable in terms of value.
· Reliance on separate entities. As of now, there isn’t a standard process for token distribution, nor is there a single authority that’s taking charge of issuing fractional shares. This will inevitably lead to confusion and inconsistency as more autonomous organizations begin to emerge. Consumers may incorrectly base their expectations on a single experience, then misread how they can earn tokens on other platforms. Some less reputable companies may also take advantage of ambiguous rules or legal loopholes to take advantage of unsuspecting consumers.
Asset tokenization is already beginning to emerge, but it will likely be months, or even years before we start seeing the emergence of truly autonomous organizations. In any case, there are many applications for blockchain that are currently left untapped, and it’s only a matter of time before they start to reshape our economic systems.