An overview of tokenization using the blockchain


An overview of tokenization using the blockchain

Under the tokenization understand the process of replacing important information with a unique identifying set of characters (it can be called a token or a label) that contains all the necessary parts of the message. This creates a digital passport that can get any tangible and intangible asset, or some action, e.g., payment, or time, or legal status. This passport is a unique digital code that can later be transmitted over communication networks. Tokenization can potentially be applied to all types of economic activity and all types of assets. This it is fundamentally different from ICO.

Tokenization may occur on any dedicated platform. For example, for tokenization of art objects has developed a platform Artex, a real estate listings platform Atlant. However, most of them the process of creation and circulation of tokens are opaque and poorly protected. Only the blockchain today offers a transparent and safe procedure of issue and circulation of token.

For this reason, tokenization is commonly understood as the introduction into production processes of blockchain technology. This technology is considered by many to be revolutionary because it can permanently change habitual ways of interaction between people.

The advantages of tokenization on the blockchain

Tokenization, which can be used to minimize the amount of data needed for conducting business, has become a popular way to increase the security of credit card transactions and e-Commerce transactions. It allows you to optimize costs and simplify the implementation of the requirements of existing standards and regulations.

Simple and secure payments

Tokenization simplifies the process of payment for goods and services and makes it safe. Originating as the infrastructure for financial payments digital currencies, the blockchain has proven himself as a universal payment instrument.

Decentralized security

The number of companies servers which have been broken into, is huge, as well as the damage done by cyber attacks. The decentralized nature of the blockchain invalidates such common types of attacks like phishing or DDoS attacks require a Central server. Usually criminals do not have enough resources to attack all the computers in the chain blockchain.

High reliability

The decentralized nature of the blockchain is also the basis of its reliability. If the failure occurs in one link, the others take over its functions, ensuring the continued operation of the entire circuit. This property is especially important for companies operating in the supply of goods and services to customers who can be assured that their payment will not be lost, and the goods will be delivered in time.

Potential areas of application

These advantages have unconditional value and are the capabilities that will enable tokenization on the basis of the blockchain to find application in many industries and services, wherever you need direct and secure exchange of data without a mediator. The use of the blockchain increases the tracking accuracy of the product, the promptness of supplies of raw materials and transparency of operations. It can be used to establish business relationship with partners, who for one reason or another there is no trust. The interests of the parties will be assigned to smart contracts. This will allow you to do without the services of an escrow agent and will be an important stimulus for further development of international business.

Payment system

Tokenization replaces payment digital label (token) get the confidential data (credit card number or account). The token is not associated with a specific person or account, so processing, transmission and storage safer. The process of tokenization, built in payment processing is already widely used by large online stores, especially if there is a re-payment. In addition, tokenization is a major component of payment systems, offering payment in one click, or mobile payments such as Apple Pay, Samsung Pay, and Android Pay. Have licenzirovanie their payment systems and applications such as Venmo and services Uber and Lyft.

Services sharing

Services sharing, such as Uber, Airbnb, and Lyft, have emerged after 2008 and today, their total market capitalization is more than $335 billion in the US, their services are used by about ? population. For companies of this type is vitally important reliable communication within the system and the security of users ‘ personal data and payments, which provides tokenization.

Health insurance and medical facilities

Computerization has made the problem of maintaining sensitive information of patients is extremely sharp. Thousands of medical establishments are suffering from утечк9и information. To solve this problem by making the tokenization of personal health records.

The real estate market

Today, data on the owners of real estate are not confidential. The only exceptions are the most expensive objects. Tokenization will make the process of confidentiality is cheaper. You will also have the opportunity to conclude transactions, without intermediaries, to buy any interest in the property, and to ensure the execution of contracts, reducing the services of lawyers. In Ukraine, for example, have already begun to develop a system that will allow you to tokenservice listed in the state register the property and then to hold her purchases and sales.

Financial market

Immediately after tokenization asset according to the model of cryptocurrency can be traded in the secondary market and becomes the object of sale. This provides great opportunities for the modernization of financial markets and the investing process. Investment will be cheaper, safer and more accessible, and also will allow to involve in sphere of financial operations new participants and new assets, such as time or legal status.

Problems of tokenization

As with any technology, tokenization has not only advantages. Its introduction is accompanied by several challenges.

  • Tokenization requires the development of an effective method of translation of the text in the code that is used to create a token. The procedure shall undergo verification by the same rules that don’t exist yet;
  • There is no uniform standard for forming the token. In different systems it can represent a set of random numbers or the result of encryption. In the latter case, there is a danger of cracking the encryption key;
  • To improve the effectiveness of tokenization in payment processing it is necessary to develop a universal standard that must adhere to at least the main payment system;
  • User safety is increased only after the fact, so the data was licenzirovanie. However, the company needs to store and process the original confidential information. We need to find ways to protect customers until the release of the token;
  • In many cases, if we are talking about the tokenization of the payment systems to confirm the payment, the response sent by system message, not subjected to encryption, and because it is a source of risk. You need to change the infrastructure of the system to encrypt all information.

Tokenization can completely change the traditional ways of storing and treatment of traditional assets. Gradually emerging through the implementation of tokenization new business model will allow to make the communication easier, faster, cheaper and safer. The revolutionary potential of technology only begins to sink in the business community, but its broader adoption will take time.

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