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Unlocking Real-World Asset Tokenization | ShipFinex

Updated: Dec 22, 2023

Real World Asset Tokenization
Real World Asset Tokenization

The scope of good financial investment in today’s world is much higher than ever before, however the participation is at a mere 50 percent in the US, 30 percent in Britain, and in countries like India, China and Indonesia, as low as 13, 3 and 1 percent. What abundance the world has in investment potential; it lacks in investment education. The salaried individual, on an average, gets a handle of investing in the stock market in her mid-twenties, and only with the right mix of curiosity and time on the internet, does she broaden her horizons. You, reader, have landed here as a result of this mix.

The stock market can be an elusive place. It suggests that you can own a part of something intangible and has been suggesting so for over three centuries. Yet, when the NFT boom sent our boats rocking, this concept felt new and alien to many. There’s no arguing that the blockchain showed up in the average netizen’s life as somewhat of an extra-terrestrial machine. Tokens representing ownership of non-fungible, intangible items. You could own, as an alternative asset, a thought, or a tweet. Even toilet paper.

Tokenization is a process of creating digital representation of an asset. If the first tweet ever is considered “valuable” and has potential buyers in the market (it’s like how one would buy the first model of an airplane ever), it can be represented by a digital token with transferrable ownership. If you own the token, you own the tweet.

Traditional ideas still urge us, however, to question the origins of what is valuable. People invest in non-fungible assets because technology has now allowed us to. Wealth generation is so much more than the ownership and trade of what is traditionally considered valuable, however the traditional understanding of valuable materials – land, resources, property – is still a favorable choice for most investors. And it makes sense that people trust this. They’re putting money into something that exists physically, something they understand better, and feels safer. So tomorrow, if the Royal family should decide to sell the land beneath Buckingham Palace, and they had the resources and technology to own even a fraction of it, they might be tempted.

Real assets can be tokenized. The same way that shares of an organization are a representation of public ownership. One could have fractional ownership of coveted real estate, or an airplane, or a cargo ship, or the upcoming payment on an invoice. The world is full of endless possibilities. One might wonder how this this makes the financial investment world any more accessible than it was before. Isn’t it just complicating things further?

On the contrary, these tokens are backed by something the equity exchanges simply do not have yet – the transparency of the blockchain. While they do say that the internet never forgets, the world’s largest information retrieval system can be a tough to navigate. The chain is simpler. Transactions recorded on the blockchain can never be modified and are easily read. It may just lay the foundations for a borderless and fair economy.

Without getting into all the gritty details, the blockchain can be thought of as an elegant, yet simple method of bookkeeping. Each block can be visualized as a book of ledgers, written in a language that can only be translated through a key. This is encryption, and most blockchains famously use the SHA 256 algorithm to perform it. The key for a preceding block is stored in the block that comes next, hence forming a chain. Now here’s the elegant part— the key for SHA-256 is dynamic. This means that if the contents of a block were to be modified, the key would be modified too.

This means that mistakes in the ledger can also be modified. You might wonder that if all the blocks are connected this way, nobody would be able to tell if a block were to be maliciously modified, as all the following blocks would change too. But then, here’s the simple part: a blockchain, by design, is decentralized.

Which means that for any modification to be successfully implemented, multiple authorities need to accept it as a rightful change. In the current economic system, there is only one authority that has access to the ledger of the world’s transaction. These are banks. In a decentralized system, the authority over the ledger belongs to multiple people, who are invested in maintaining the integrity of each block. Hence any change needs approval from multiple people. To add to this, the computing power required to firstly decrypt a SHA-256 encrypted block, then to modify it, is simply too large to conveniently procure. These features make the blockchain a fair and transparent method of bookkeeping transactions, mostly tokens or cryptocurrency.

Returning to the fractional ownership of real-world assets, we can surmise that the combined price of all the digital tokens created will be equal to the value of the real-world asset being tokenized. This way, individuals interested in ownership can attain it using their digital wallet, and this transaction resides permanently on the blockchain. When the valuation of the asset increases, individuals may choose to hold onto or resell their tokens and cash in on the profits.

The first hurdle is the fear of newness. Once we are educated on the fundamentals, the scope is endless.

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