Tokenization

Tokenization is a process that transfers the value of any asset to the blockchain. You can tokenize a company, services, a project or even human stories.

Generally speaking, a token is a representation of a specific asset or utility. In the context of blockchain technology, tokenization is the process of converting something of value into a digital token that is recorded on a blockchain network. Assets tokenized on the blockchain come in two forms. They can be tangible assets such as gold, real estate and art, or intangible assets such as voting rights, ownership rights, content licensing or services, for example. Virtually anything can be tokenized as long as it is considered an asset that can be owned and has value to someone and can be incorporated into the larger asset market.

There are three main categories of crypto-tokens, although the delineation can blur depending on the specifics of the particular token or platform with which it is tokenized.

Security tokens

Security tokens embody a specific investment, such as a stake in a company, voting rights in a company or other centralized organization, or some tangible or digital thing of value. In addition to serving as a digital representation of the underlying asset or instrument, security tokens can be programmed with an inexhaustible array of unique characteristics and ownership rights. As such, these tokens represent an entirely new type of digital asset.

Utility tokens

Utility tokens represent access to a given product or service, usually on a specific blockchain network. Utility tokens can be used to power a blockchain network’s consensus mechanism, secure operations in a decentralized market, pay transaction fees, or give grant holders the right to submit and vote on new developments within a decentralized autonomous organization (DAO) or other decentralized network. While Security tokens are primarily used to establish ownership rights, Utility tokens are more focused on practical uses. Many crypto tokens launched through Initial Coin Offerings (ICOs) on the Ethereum platform are intended to function as Utility tokens.

Currency tokens

Currency tokens are intended for trading and spending. Some are based on underlying assets – as is the case with asset-backed stablecoins such as MakerDAO’s DAI and GUSD Gemini. Many others, however, are not based on any underlying assets. Instead, their value is directly linked to their distribution mechanism and the underlying blockchain network.