Oct 22, 21  |  Sharjeel Ashraf

Tokenizing Physical Assets: When to Join the Bandwagon?

If you are new to tokenization or digitization of real world assets, this is what it means in the simplest terms.

You are basically creating shares of a real world asset.

So, what are real world assets?

Real estate, bonds, shares but mostly real estate and businesses.

Businesses are already digitized in terms of shares. So, tokenizing them or taking them digitally is a lot easier. 

But what about arts? Real estate? These are some places that were not easier to tokenize until one or two years ago.

Now arts can be tokenized in two ways. Either you tokenize it as an asset, or you tokenize as a copyrighted product.

In the first one, you are tokenizing it into small chunks. Let’s say you tokenize Mona Lisa’s painting into 100,000 tokens for its total value.

The painting is valued at 100,000 million so each token will be worth 1 million dollars.

Now these 100,000 tokens can be put on an exchange or trading platform where people can trade them and this can increase the value of the art.

That being said, you don’t need to tokenize every art piece out there. 

Now the second option to tokenize art is with the help of NFTs or Non Fungible Tokens. With NFTs, you will want to protect or add a copyright to the painting/art piece that you drew.

What this does is that it allows you to minimize the risk of others duplicating your copyright and using it for their own business.

What about Real Estate Tokenization?

Real estate tokenization is similar to the first use case I just shared. Tokenization of real estate assets is similar to art-based tokenization.

You can distribute or segment the real estate based on the area, price, or any other parameter and create tokens around them.

So, a real estate property of 10,000 yards can be tokenized into:

1 yard = 100 tokens

This will make the property have 10,000,00 tokens that can be traded on the trading platform or exchange.

Should You Tokenize All Real Estates?

It really depends on the requirements. Not all real estate properties are worth tokenization. There are real world assets that would require tokenization but that is for properties that are far away from the reach of individuals. Let’s say properties that are in 100 millions or even billions. These types of real estate properties can be brought to digital exchanges or trading platforms.

>>> Top Blockchain Developers for Business

When to Tokenize Physical Assets?

Tokenizing physical assets depend on the following:

  1. Liquidity
  2. Total Cost
  3. Ownership
  4. Rarity

Not every physical asset is worth tokenizing. You would not want to tokenize your own house. Why? Because, first, it is not rare. You don’t want to share the ownership of your asset with others. And more importantly, the cost of your house is not in millions.

But Central Park Tower in the USA is a physical asset that can be tokenized. Why? Because tokenization of physical assets can increase liquidity. Moreover, tokenizing it can provide a fair market value to the property - that is not always the case with most real world assets.

Is Tokenization of Real World Assets The Future?

Tokenization will play a crucial role in bringing real world assets like rare art pieces and real estate properties to the online trading platforms. People from anywhere in the world will be able to buy and sell these real world assets with the help of tokenization.

Tokenization will also help improve the fair market value of most real world assets that are digitized depending on the promises the companies that are managing those assets make.

Which Blockchain/Platform is Best for Tokenization of Digital Assets?

As of now, Ethereum blockchain is the most suitable blockchain for creating tokens of real world assets. However, the Ethereum blockchain has a lot more gas fees in comparison with other blockchains. 

Also, ethereum is not dedicated for tokenization of real world assets so in the long-run a dedicated blockchain would be needed to get the job done.

>>> Tokenization of Real-World Assets: How, Why & When?

What About Regulations for Tokenization of Digital Assets?

We are still in the infancy of digital asset tokenization. But with time, we would need many more strict regulations to ensure that assets are safe, secure, and backed by physical properties.

Here is one scenario where digital tokens can minimize frauds.

One real estate company wants to tokenize its property and  put it on a digital exchange. The digital exchange only allows properties that are properly constructed. 

So, the real estate company would have to provide proof of construction through time-stamped videos, leased documents of the state, and land ownership documents to ensure that its property is legit, legal, and properly constructed.

These regulations are important to secure the interests of all investors that are using those trading platforms for trading. After all, it is the hard earned money of the investors.

Tokenized Real World Assets & Potential

Real world asset tokenization has immense potential. Companies can use tokens to get capital for their project, raise funds, expand their business faster, or just increase the value of properties they have already developed.

For individuals, tokenization of physical assets allows them to become a part of different promising real estate properties by getting a share of them through tokenized coins.

Since with time, the value of these coins rises and it benefits both the individual investors and the managing companies.

Ready to Create Tokenized Assets for Your Physical Assets?

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Whether you are looking to tokenize real estate or art pieces, these blockchain development experts can get the job done.

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