How we think about store of value has changed quite a bit over the course of human history.

From the old ways of silver and gold, to the modern age of fiat currencies and mobile banking. And now, as we enter the age of Web3 and cryptocurrencies, the idea of storing our wealth is about to evolve once again.

The technology and infrastructure introduced by cryptocurrencies and blockchain technology have laid the foundations of something that will revolutionise how we store value and perceive assets.

Picture this: we could take almost any asset, and make it instantly tradable, accessible to anyone, anywhere in the world?

While that may sound far fetched, it’s actually not. This idea of digitising a real-world asset is behind the concept of tokenisation.

Building on the foundations laid by cryptocurrencies and NFTs, tokenisation is poised to redefine how we own, store, and transfer value/wealth by recording ownership on an immutable public ledger

Key takeaways:

Tokenisation is revolutionising ownership by converting rights to physical or digital assets into blockchain-based tokens, making them more accessible and liquid. From real estate and fine art, to company shares and intellectual property.
Additionally, tokenisation brings increased liquidity, fractional ownership, enhanced transparency, reduced costs, faster settlements, and global accessibility.
Tokenisation promises to democratise access to assets, unlock deep liquidity, and reshape the global financial landscape as we know it.

What is Tokenisation?

At its core, tokenisation is the process of converting the rights to an asset, whether physical or digital, into a digital token on a blockchain.

Think of this like creating a digital twin of an asset, where this digital version carries all the necessary identifying information and verifiable proof of ownership.

Ok, but how does it actually work?

To understand the process, we need to take a look at 2 foundational technologies: blockchain and smart contracts.

What is blockchain? In short, it is an immutable ledger that acts as a decentralised, tamper-proof record book. Every token ever created, and every transaction involving that said token, is securely recorded on this record book, ensuring transparency and immutability.
What about smart contracts? Smart contracts are self-executing agreements stored directly on the blockchain. Smart contracts are exactly as they sound, contracts that define specific rules governing the token, such as who owns it, how it can be transferred, its divisibility, and any embedded rights or obligations associated with it.

In short, tokenisation offers fractionalisation, lower transaction costs, and 24/7 global trading, making asset ownership far more granular and accessible.

Further reading: Learn how smart contracts work.

The token vs. the asset

It’s important to understand that the token itself is not the physical asset. Instead, the token represents verifiable ownership or specific rights to the underlying asset.

For example, owning a token representing a fractional share of a building means you own a digital claim to that part of the building, with the associated legal rights recorded and managed by the smart contract.

Learn more about blockchain: Read our guide on how blockchain works.

Real World Assets on the Blockchain

Tokenisation isn’t confined to digital art; its true power lies in bringing real-world assets (RWAs) onto the blockchain. This opens up a vast new frontier for investment and ownership.

Tangible Assets

In this context, tangible assets here refers to traditional real-world assets that we can physically interact with. Below are some examples:

Precious Metals & Commodities: Digital tokens backed by physical gold, silver, or even barrels of oil offer a highly liquid and secure way to invest in these assets without the complexities of physical storage or transfer. In fact, there are projects that exist today that cater to tokenisation of precious metals, such as Kinka (XNK) that have tokenised gold on the Cardano blockchain.

Real Estate: Want to be a home owner, or add real estate to your investment portfolio? Tokenising properties allows for fractional ownership, meaning you could invest in a share of a luxury villa or a commercial building without buying the entire property.

Tokenisation not only makes this more accessible, but also makes this type of asset more liquid. Think of the process that goes into selling a house, or any piece of real estate–realistically you can’t simply list a house on the market and expect a transaction to settle instantly. With tokenisation, you can sell that fractional piece of ownership for instant liquidity.

Fine Art & Collectibles: Have you ever wanted to own a piece of Starry Night, Monalisa, or any piece of fine art? Beyond unique NFTs for digital art, physical masterpieces can be tokenised.

Imagine looking at your portfolio and seeing the likes of Jackson Pollock, Van Gogh, etc listed on your list of tokenised assets. This democratises access to high-value art, allowing multiple investors to own a share through the blockchain.

Luxury Goods: High-value items like rare watches, vintage cars, designer bags, or anything you can think of can be tokenised providing verifiable authenticity and enabling fractional ownership, making them accessible to a wider investor base.

Intangible Assets

Aside from physical tangible assets, tokenisation also extends to intangible/digital assets, potentially revolutionising how we perceive ownership of intangible goods.

Below are some examples of intangible assets that can benefit from tokenisation:

Bonds and Equities (Security Tokens): This is where tokenisation directly intersects with traditional finance. Bonds, company shares, and private equity can be digitised as security tokens. This can potentially streamline capital markets, enable faster settlements, and create new avenues for fundraising, often referred to as Security Token Offerings (STOs), as alternatives to traditional IPOs.

Intellectual Property (IP) & Royalties: Creators can tokenise their intellectual property (e.g., music rights, patents) or future royalty streams. This empowers them to directly monetise their work and distribute earnings transparently through smart contracts.

In-game assets: The gaming industry is perhaps one of the most straightforward industries to integrate tokenisation. In-game assets such as characters, maps, or any type of unlockables can easily be tokenised to have verifiable ownership and also facilitate in-game economies.

Transformative Impact of Tokenisation

The move to tokenised assets isn’t just about digitising; it’s about unlocking significant advantages that reshape how we interact with value.

Unlocking liquidity: This is perhaps the biggest game-changer. Assets like real estate or private equity, traditionally illiquid and difficult to sell quickly, can be fractionalised and traded instantly on global marketplaces, creating continuous, 24/7 liquidity.
Democratising access & financial inclusion: By allowing fractional ownership, tokenisation lowers the barriers to entry for high-value assets. Investors with smaller capital can now participate in markets previously reserved for institutions or the ultra-wealthy, fostering greater financial inclusion worldwide.
Enhanced transparency & auditability: Every token issuance and transaction is recorded on an immutable public ledger (blockchain). This provides transparency, reduces the risk of fraud, enhancing audit trails, and builds trust.
Operational efficiency & cost reduction: Smart contracts automate many processes that traditionally require intermediaries like lawyers and custodians. This helps to streamline operations, reduce paperwork, minimises human error, and cuts down on transaction fees.
Faster settlement times: Traditional asset transfers can take days or even weeks to settle. Tokenised assets can be transferred and settled almost instantaneously, improving efficiency.
Programmability & automation: Smart contracts allow for complex rules to be embedded directly into the token. This enables automatic dividend payouts, royalty distributions, voting rights, compliance checks, or even automatic asset rebalancing without manual intervention.
Global reach: With blockchain, geographical and jurisdictional barriers are significantly reduced. Investors can access tokenised assets from anywhere in the world, fostering a truly global marketplace.

Challenges and Risks of Tokenisation

While the potential of tokenisation is immense, it’s not without its risks and hurdles that need careful consideration.

Regulatory Uncertainty & Legal Frameworks

Arguably the biggest challenge to tokenisation is the regulatory and legal frameworks that need to be put in place. Imagine playing a new game where the rules are still being made as you play–that’s more or less the current landscape for tokenised assets.

Different countries have different ways of approaching how to categorise and govern these tokenised assets. This uncertainty can pose a challenge for companies that want to jump in, complicate international deals, and present legal uncertainty.

Legal Enforceability & Asset Backing

A token represents ownership, but how does that digital claim hold up in the “real world” if something goes wrong?

For example, if you own a token for a piece of real estate, how do you ensure your ownership is recognised by traditional property laws?

This challenge is about making sure the digital token is strongly and legally tied to the physical asset it represents. Proper legal agreements are essential to bridge this gap between the digital and physical landscapes.

Cybersecurity & Smart Contract Vulnerabilities

While blockchain technology is inherently secure, the platforms hosting tokens and the smart contracts governing them are not immune to risks.

Hacking, smart contract bugs, and the secure private key management remain significant concerns for digital asset holders.

Learn best safety practices: Read our security tips.

Market Liquidity (Early Stages)

Tokenisation promises to make assets more liquid, meaning easier to buy and sell quickly. But in the early days of a new market,

It can be like trying to sell a unique item in a small, online shop, there may not be many buyers or sellers yet.

So, while the technology allows for instant trading, the actual ability to find a buyer or seller at a fair price can still be a challenge for some tokenised assets, especially those that are very new or niche.

Interoperability & Standardisation

Interoperability is just a fancy term for compatibility. Imagine trying to connect different types of computers that all speak different languages. That’s the interoperability challenge with blockchains.

Current blockchains such as Ethereum, Solana, etc all operate independently, making it challenging for tokens to move seamlessly between them.

For tokenisation to reach its full potential, there needs to be a common “language” or standard that enables tokens to speak to be easily transferred and used across different blockchains.

Future Prospect of Tokenisation

Despite the challenges, the trajectory of tokenisation points towards a transformative future, impacting far more than just investment portfolios.

Deeper integration with DeFi: Tokenised real-world assets are unlocking new opportunities within decentralised finance (DeFi). Imagine using a tokenised share of a building as collateral for a decentralised loan, or integrating tokenised carbon credits into DeFi protocols.
Institutional adoption: Major financial institutions, from investment banks to asset managers, are no longer just observing; they are actively exploring and implementing tokenisation strategies. They recognise the immense efficiencies and new product offerings it can bring to traditional finance.
New financial products & services: Tokenisation incites innovation, leading to entirely new types of financial instruments and services that were previously impossible due to friction and cost.
Metaverse & digital economies: As virtual worlds and digital economies grow, tokenisation will be the backbone for verifiable ownership and commerce within these spaces, from virtual land deeds to in-game items.
Regulatory evolution: As the technology matures and adoption increases, regulatory bodies worldwide are expected to develop clearer and more harmonised guidelines, fostering greater certainty and legitimacy for the tokenised asset market.

Takeaways

As we push onwards towards a more digital future, the advent of tokenisation will continue to redefine our relationship with value–and possibly reinvent how we perceive it.

In fact, institutional backing has already gained traction from the likes of BlackRock for tokenisation to be approved for bonds, stocks, and possibly beyond.

While traditional assets remain relevant, cryptocurrencies and blockchain tech has opened the door to new paradigms, and now, tokenisation is building the bridges between the digital and physical worlds.

Tokenisation is setting the stage to streamline financial processes on a global scale through enhanced liquidity and the democratisation of investment.

Also read: Exploring Modern Stores of Value in the Digital Age.