What is tokenized tangible asset

Asset tokenization is quickly gaining popularity due to its great advantages. It eases the process of investment for both investors and entities who are looking for financial resources. It also paves the way for investors with a small amount of budget to invest on valuable assets. Let’s see how it works. 

What does tokenization mean?

The process of converting an asset of any type to a digital token which is operational across the block chain network is called tokenization. Even data and identity can be tokenized and stored in a block chain network. The good thing about tokenization is once an asset or even a piece of information is tokenized, it receives a unique identifier. All information about the authenticity and ownership are all stored in a blockchain. It can not be replicated, changed, deleted or stolen. That’s why tokenization is rising in popularity in today’s world.

Assets that are subject to tokenization

In general, there are two types of assets that can be tokenized; tangible and intangible assets.

• Intangible assets

Assets that don’t exist physically. A brand name, logo or any other intellectual property sits under intangible assets. The ownership and authenticity of such assets are traditionally stored in a piece of paper, registered in an official authority ledger. By tokenizing an intangible asset, all information about the asset will be stored in a blockchain with a unique identifier issued to the owner. Like mentioned before, the asset ownership and authenticity will remain safe under the owner’s name with no risk for replicating or misusage.

• Tangible assets

Tangible assets refer to any type of asset that physically exists in the real world. An artwork, a piece of diamond, an apartment or even a photo are all tangible assets. Like intangible assets, the ownership and authenticity of the tangible asset will be tokenized and stored in a blockchain. However the token is linked to a real world asset with all information about the value and ownership stored in the token within the blockchain. 

Types of tangible assets that can be tokenized

1- Fungible Assets

Refers to the assets that are not unique in nature and can be interchanged in the market. For example, a ton of wheat is a fungible asset that can be tokenized. As such the buyer of a wheat token will be the owner of a ton of wheat with all information about the wheat stored in the blockchain. 

2- Non-Fungible Assets

Non-Fungible assets refers to the assets that are unique in nature. For instance, an apartment with a certain address in Dubai is a non-fungible asset. These assets can also be tokenized and more importantly be fractionalized. That specific apartment can be broken down to say, 1000 tokens and investors are easily able to purchase one, two or a few tokens. Asset-backed NFT is an actual asset like an apartment that is fractionalized and tokenized. Once an investor buys a token of a property, they will be the proud owner of a fraction of that property.

Real estate as one of the most popular tokenized tangible assets

Investment in real estate is one of the most popular and low risk investment options across the globe. Most people are eager to buy a property to enjoy the capital growth over time and more importantly the passive income generated from renting the property out.  However, most people cannot afford to invest in a property due to the high price associated with real estate in popular areas. The tokenization of property  allows small scale investors to make a fractionalized real estate investment. To be more specific, assume that a villa in Palm Jumeirah which is worth USD 20 million, is fractionalized to 1000 tokens worth USD 20 ‘000 each. It goes without saying that investing in one single token of that villa is affordable by more investors rather than purchasing the whole property. The Buyer of a token is the owner of 1/1000 of that villa and is entitled for any capital growth that may occur over time as well as the rent income on a pro rata basis. 

Conclusion

Tokenized assets are absorbing more attention from people with a wide range of interests across the world. It allows investors to invest in the real estate market with a small scale budget. There are great benefits associated with tokenized real estate. It not only makes more people able to invest in the real estate market, but also improves the market by absorbing more money from small scale investors. Hence, it will deepen the real estate market. Besides, it allows small scale investors to diversify their investment portfolio across different asset-backed tokens such as a share of a piece of diamond, a valuable painting, a fraction of a property or even a few barrels of oil! Even though the tokenized assets are quite new and they must pass through a long way in terms of regulation and acceptance, the future seems to be bright.