Putting Real-world Assets on a Blockchain

With the recent surge in popularity of cryptocurrencies and blockchain technology, the digital representation of real-world assets in the form of tokens has started to capture the interest of many. Tokenization allows an individual or entity to convert a real-world asset into a cryptographic token stored on a blockchain. While the stock market has already given the world a glimpse into its effectiveness, blockchain-based tokenization offers several noteworthy advantages, including security, lower overhead, and ease of use for individuals.

As a result, a fair number of real world, tangible assets have already been tokenized on a blockchain. The ownership of paintings, real estate, and even precious metals has been recorded on blockchains so far. Furthermore, since virtual items can also be given value, the digital collectible market has been one of the most fervent adopters of the technology.

While not comprehensive by any means, the following list explains a few tokenization use cases in various segments.

Since tokenization offers the ability to distribute ownership of assets, blockchain based tokens can easily be used in the art industry. For instance, a particular painting or sculpture worth thousands or even millions of dollars can be jointly owned by multiple people that hold a particular digital token. Instead of taking physical ownership of the painting itself, buyers can purchase a few tokens that represent a percentage of the entire painting or artwork.

At a later date, token holders can trade their stake on a secondary market for a profit or directly with a third-party individual. The painting can also be simultaneously displayed at an art installation, gallery or museum, generating passive revenue for token holders. While this is theoretically possible to implement even without a blockchain, tokenization enables a far greater level of transparency and eliminates human error and malpractice. Additionally, in cases of inheritance, familial disputes can be reduced significantly if each member is left behind a fixed number of tokens.

In terms of real estate, a single property can be divided into multiple units and purchased by many stakeholders simultaneously. The ownership details are permanently logged on a blockchain, ensuring that the ownership can never be challenged. If a user wants to sell their share of the property, say one percent of a mansion, they can do so without requiring the coordination of other investors. Conversely, a user that is looking to double down on their investment can simply purchase more tokens connected to that property.

Like art, cryptocurrencies have already been used to purchase real estate. However, it remains to be seen how receptive the world will be to partial ownership of the asset class. With land values skyrocketing, it is entirely possible that tokenization is the only way the middle class will be able to invest in real estate in the near future.

With video games increasingly transforming into social experiences, virtual items and collectibles such as cards, skins, and unique characters now have monetary value attached to them. Game assets, like anything else, can also be represented in the form of digital tokens and recorded on a blockchain. While a handful of games have already created thriving economies, users are often limited to the game’s own ecosystem. A universal token allows game developers to easily create real-world value out of rare in-game items. Furthermore, it presents them with an alternate source of revenue that is entirely driven by player demand.

The effectiveness of tokenization has already been demonstrated by several online platforms, including Ethereum-based CryptoKitties. The platform allows users to trade and breed digital cats. Launched in late 2017, it became famous for single-handedly clogging the Ethereum blockchain. Cats were sold for thousands of dollars worth of ETH in many instances.

At Alluva, we use digital tokens to incentivize accurate ratings on our decentralized, blockchain-based cryptocurrency price prediction platform. Users that accurately predict the price of a cryptocurrency over a week, month or year will be rewarded with Alluva tokens (ALV).

Tokenization can revolutionize entire asset classes in the near future, and enable new means of monetization, income, and investment. Blockchain-based ownership records have the potential to be just as disruptive as the adoption of computers a few decades ago. That said, very few countries in the world have embraced tokenization and blockchain technology so far. Apart from a few notable exceptions like Malta and Switzerland, governments are still in the process of drafting regulations specific to the digital asset ecosystem.