What is Tokenisation, and how does it work?

Tokenisation is the concept of converting rights to an asset into a digital token. By Tokenising assets, we have a digital representation of a real-world asset on a blockchain.

What is tokenisation

Tokenisation is a process of replacing sensitive data with unique identification symbols that retain all the essential information about the data, without compromising its security. This tokenisation process then means that these "real world" assets are now represented in a digital form - on a Blockchain.

Tokenisation makes it more difficult for hackers to gain access to data, as compared with older systems in which credit card numbers were stored in databases and exchanged freely over networks.

Tokenisation technology can therefore, in theory, be used with sensitive data of all kinds including bank transactions, medical records, criminal records, vehicle driver information, loan applications, stock trading and voter registration.

How does tokenisation work?

An example of a traditional, non-tokenised transaction is when in the use of a credit card, the credit card number is sent to the payment processor and stored in the merchant's POS terminal, or other internal systems for later reuse. If this credit card use process was a tokenised transaction, the customer's account number is replaced with a series of randomly generated numbers, which is called the 'token'. These tokens can then be passed through the internet or the various networks needed to process the payment, without actual bank details being exposed. The actual bank account number is held safe in a secure token vault.

Tokenisation as an investment process manages a digital asset that provides investors with access to robust investing strategies on any real or crypto assets, which then gives greater diversification of investment returns. By investing in a wide range of performing assets through tokenisation of property markets, mass adoption of cryptocurrencies becomes feasible.

Benefits of Tokenisation

1. Internal Protection

Tokenisation protects sensitive information from those connected to a transaction; an organisation, employees, vendors, customers, and suppliers. Tokenisation offers unparalleled protection — whether you conduct business online or at a traditional brick-and-mortar store.

2. Compatible with other technology

3. Personal Information

A blockchain based platform can use this technology for a broad range of purposes, including protecting personally identifiable data and financial information.

Tokenising a digital asset

The FinTech and PropTech industry is experiencing rapid innovation, particularly in the asset management segment. Some of the drivers of this change are aimed at giving wider access to investors who consider accountability and transparency a prerequisite to participation in technology advances.

Blockchain technology and tokenisation can extend investment opportunities into real assets, and facilitate value transfer and liquidity form the real work to the crypto ecosystem.

Blockchain-based real estate investing platforms with a tokenised system, allows for investment into tokenised real estate assets using crypto currencies such as Ether (ETH).

When the asset is fully funded, the smart contract issues investors Proof-Of-Asset (PoA) tokens, proportionate to the amount they invested.

What are some security considerations, advantages and challenges of blockchain?

Blockchain-based technology in real estate industry will be in favour for commercial real estate investors with security and utility tokens. There is massive property market in the world and according to analysts, initial coin offerings (ICOs) will have raised a combined $3.25 billion this year, creating the first visible ripple of what could eventually become a multi-trillion dollar industry.
Any innovative startup companies have been trying to adapt cryptocurrency tokens based on blockchain through the ICO raising capital model— most Ethereum(ETH)or Ripple(XRP) — and distributing them to token buyers in exchange for making a financial contribution to the project.

These blockchain transactions have an auditable operating environment with comprehensive log data that can be tested for compliance, providing security through verified transactions, locked contracts on the distributed ledger and a single set of records, that can be viewed by all members.

It has the potential to eliminate reconciliations, duplicate ledgers and disputes over contract terms in the real estate investment process. Efficiencies are gained since information is automatically continuously updated and intermediaries are removed from the transaction process.

The information in this article is general in nature. Any advice it contains is general advice only and has been prepared without taking into account the objectives, financial situation or needs of any particular person.
The article content is not intended to be a substitute for professional advice and readers are urged to seek their own appropriate advice before making decisions.
Any reference to a particular investment is not a recommendation to buy, sell or hold the investment.