It is no secret that technology has taken a huge leap in recent years and forms a big part of our daily lives. From smartphones to smart devices to virtual reality, we are surrounded by innovations that make our lives increasingly efficient and convenient. For example, did you know that you can now also own real estate or a work of art digitally? This is possible thanks to the latest development in the world of commerce: tokenisation.
Xplore Group Competence Centre Hyperlabs is happy to explain this concept:
Tokeni… – what?
Tokenisation is a process that allows us to represent objects as unique digital tokens on a blockchain. Be it jewellery, real estate or even virtual objects in video games, the possibilities are endless. There are different types including NFTs (non-fungible tokens) and soulbound tokens. The former are tradable, while the latter are not.
Tokens are always stored in your digital wallet: with them you create a digital identity, which allows you to perform digital transactions safely and efficiently without having to reveal all of your personal data.
You can keep a token as a long-term investment, exchange it for a physical product when applicable, or actively trade it. When you trade it, it is subsequently stored in your wallet as a smart contract: a kind of digital, self-executing contract built on the blockchain that is programmed in such a way that action B happens only after action A is met. In the case of tokens specifically, this means that the buyer only takes possession of them after paying you, and only after this transaction appears in your wallet. Such a contract is always immutable and transparent and has the advantage that all parties involved can sell in a safe and efficient way.
Advantages of tokenisation
But what makes tokenisation so special? What benefits for a company does it bring?
Authenticity: Tokens are unique and cannot be copied, so fraud is difficult. Because they are on the blockchain, every transaction is also traceable and transparent.
Security in personal data: Through tokenisation, you don’t have to share sensitive data such as account numbers or identification details. So you reduce the chances of your data ending up somewhere you don’t want it. Exception: the bank you used to purchase crypto money to acquire tokens will obviously have your data. Or when you are ready to exchange your crypto money for physical money again, they will also need your personal data.
Cost savings: by making products virtual, you can save costs as a company, and you can also save on e.g. transport costs when physical products are involved, but do not need to be in your or the buyer’s possession immediately.
Faster payments: through your digital wallet, you can make payments faster (at the touch of a button) and avoid the risk of payment errors.
Exclusivity: via NFTs (non-fungible tokens), you can offer products exclusively that cannot be bought in the ‘regular’ world or via ‘normal’ money.
Limitability: When it comes to souldbound tokens with a certain validity, you can automate the availability of the token to limit abuse or fraud.
Some real life examples
We understand that tokenisation may be vague and complex. We are happy to give some practical examples.
Adidas, for example, released a collection of hoodies exclusively via NFTs (non-fungible tokens) in late 2021. These could be worn virtually in the gaming world, and a few months later the tokens could also be exchanged for the physical item. By making the collection available for sale only through NFTs, Adidas created an exclusive product, one that sold at a higher price (0.2 Ethereum – a cryptocurrency equivalent to around $800 at the time), AND the advantage that they had the exact number to go into production which meant there was no excess stock.
A second example: an exclusive painting can also be tokenised and put up for sale virtually. As a consumer, you can purchase this token and keep it in your personal wallet: you now own the physical painting, even though it is not in your possession. This way, you don’t have to pay transport costs and you minimise the chances of the painting being stolen from your home. Via the smart contract linked to the token, you can prove ownership at any given time. Would you like to receive the painting physically? No problem! You can exchange the token for the physical product and it will disappear from your wallet. On the other hand, you can also choose to keep the token as an investment and resell it at a later date. A kind of virtual stock market, in other words.
Digital art can also be tokenised and traded. Reddit, for instance, uses this in the form of avatars. These were made available by specific artists as NFTs, and because Reddit offers them on their platform, they receive a certain percentage when trading them and thus have an additional source of income.
In addition, you can also turn individual certificates into tokens, which are then soulbound tokens. For example: after passing a certain exam, you receive a certificate, which is stored in your digital wallet and cannot be resold. If this certificate is only valid for a certain period of time, it will automatically disappear from your wallet after that period.
As you may start to realise now, a lot is possible with tokenisation. It opens the door to many new possibilities and offers a safe and transparent way to trade or invest in valuable objects with limited risks. All tokens are unique and traceable. So you don’t have to worry about fraud or forgery.