Asset tokenization in plain English

• DOI: http://doi.org/10.1002/jcaf.22432
• Author: George Sazandrishvili
• Published date: 01 April 2020
• Date: 01 April 2020

BLIND PEER REVIEW

Asset tokenization in plain English

George Sazandrishvili

Independent Consultant, Málaga, Spain

Correspondence

George Sazandrishvili, Independent

Consultant, Calle de la Cruz 5. Apartment

16. Málaga, 29620, Spain.

Email: george@sharpcode.pro

Abstract

Asset tokenization is an expansion of blockchain technology that allows digital

assets to be bought, sold, and traded on blockchains. Digitizing real assets

will help create universally accessible, fast, liquid, and transparent invest-

ment and financial systems. However, blockchain and related asset

tokenization are still in their infancy, and there are obstacles that need to

be overcome before widespread adoption occurs. This article describes what

it means to tokenize an asset on a blockchain, how tokenization is accom-

plished, and why it has the potential to disrupt a variety of industries, par-

ticularly the financial and real estate industries. Challenges that are

associated with implementing asset tokenization are also explored.

KEYWORDS

asset tokenization, benefits of tokenization, blockchain technology, challenges of asset

tokenization

1|INTRODUCTION

Blockchain technology, which gained prominence

through the launch of the cryptocurrency, bitcoin, is

being expanded to many other business processes. One

such expansion of blockchain use is the tokenization

of assets. Tokenization is a method that converts rights

to an asset into digital tokens that can be bought,

sold, and traded on blockchains. Tokenization on

blockchains has been a steady trend since early 2018. It

seems that everything is being tokenized from paint-

ings, diamonds and company stocks to luxury boats,

jetliners, and real estate. There are even projects aiming

to tokenize oceans, celestial objects, and other “exotic

assets.”

This article describes what it means to tokenize an

asset on a blockchain, how tokenization is accomplished,

and why it has the potential to disrupt a variety of indus-

tries, particularly the financial and real estate industries.

Challenges that are associated with implementing asset

tokenization are also explored.

2|HOW DOES ASSET

TOKENIZATION WORK?

To “digitize”means to turn non-digital into digital

(e.g., you take a video shot on tape and turn into DVD). In

the context of asset tokenization, physical assets are turned

into digital assets. Then, the digital assets can be sub-

divided and the subunits can be represented by a digital

token. Exhibit 1 illustrates this process. All tokenization is

digitization but not all digitization is tokenization.

Tokenization is a special form of digitization that supports

fractional investment and ownership.

Representing real assets as digital tokens allow issuers

and holders of the tokens to achieve the benefits of cryp-

tocurrency, that is, security, liquidity, and immutability,

to real-world assets. An example of the benefits of

tokenization can be seen in the ability to “fractionalize

ownership”of real assets. Imagine you want to invest in

real estate but your initial investment is modest —say

$5,000. Perhaps you want to start small and increase your

investment gradually. For instance, you decide to invest a

Received: 11 November 2019 Accepted: 14 November 2019

DOI: 10.1002/jcaf.22432

68 © 2020 Wiley Periodicals, Inc. J Corp Acct Fin. 2020;31:68–73.wileyonlinelibrary.com/journal/jcaf