Business digitization through tokenization
Tags: business, enterpreneurship, tokenization, crypto
Published: 2022-09-10 18:54:17

The term "tokenization" has been gaining enormous popularity recently, especially in business environments. As a result of the global pandemic and related inflation, confidence in banks and investment funds is declining. Entrepreneurs are starting to look for solutions to bypass these types of institutions. This possibility is offered by tokenization, i.e. a form of digitization based on blockchain technology.

What is business digitization through tokenization? How to create a token and can it be used as a debt collection tool? We will start our considerations with a short explanation of the tokenization itself.

## What is tokenization?
Tokenization is possible thanks to blockchain technology. Blockchain is a decentralized database, a technology used to collect data. Due to its nature, blockchain is often referred to as a distributed ledger technology. Data is added to the registry according to specific rules, and each entry is linked to the previous one. One of the most characteristic features of blockchain is that the data entered into it is practically indelible and unchangeable.

Tokenization is a form of transforming value into digital resources, one of the largest global use cases for blockchain technology. Digitization itself, e.g. in the work of accountants, is nothing new. The use of computer programs in accounting or financial operations, electronic documents, e-invoices, and electronic signatures, or storing documents in a cloud are everyday life for many companies.

## What is a token?
The concept of a token is very broad. In the context of blockchain, a token can be anything that can be digitally transferred to it. A token is anything that is tracked or transacted on a blockchain, although in most contexts the term token refers to a native token (e.g. bitcoin or ethereum, on its respective blockchains) or a digital asset defined by a smart contract that implements one of the token standards.

The token can be a digital representation of an asset - a representation of value in the digital world.

We divide tokens primarily into fungible tokens (including payment, utility, and security tokens) and non-fungible tokens. 

**The token can be:**

- a digital representation of certain transferable property right. Then the token confirms the right that its holder is entitled to. A digital property right can be to a digital asset or a stationary asset, e.g. real estate;
- A share,
- A right to share.
Business digitization through tokenization

Why tokenize your business? The transparency, disclosure, and credibility provided by the blockchain support the transfer of the traditional business model to the digital sphere. The data stored on the blockchain cannot be manipulated, it is publicly available and reliable.

Observing the development of new technologies and their implementation in business reality, it can be concluded that the time has come to popularize blockchain technology and tokens based on it. Still, many companies ask more questions in this matter than they receive answers, which inhibits development. Business tokenization is based on the creation of tokens closely connected to a specific project. The tokenization process, during which the value of the project is transferred to the token, can be used as a tool to simplify and automate processes in the enterprise and be a method of its financing.

## Asset tokenization
An interesting category of tokenized assets is real estate. This process is gaining more and more popularity, as it is characterized by the speed of transactions, lack of intermediaries, security, and transparency. The process is based on issuing tokens on the blockchain and then assigning them to a specific property. Importantly, tokenization may apply to real estate that already exists or is under construction. The token can also represent an interest in real estate.

## Financing of the project: ICO and STO
Tokenization is successfully used for ICO and STO, which are forms of raising capital. Issuing own token means greater influence and control.

**ICO (Initial Coin Offering)**, which is the most popular method of raising capital in the form of cryptocurrencies or tokens, is used to finance projects, most often start-ups in to form of crowdfunding. In this case, users are motivated by the promise of the rising price of the token related to the development of the project.

**STO (Security Token Offering)** - security tokens are backed by company shares or equity. These types of tokens represent the value of shares issued by companies on the blockchain. Owning stock-based investment tokens entitles investors to company profits and gives them the right to vote. Security tokens, in most jurisdictions, guarantee investors compliance with securities laws.

Tokenization is a new, interesting, and prospering form of raising capital for investors and issuers.

## Investing in art with NFT tokens
NFT (non-fungible tokens) tokens are very well suited to support investing in the art market, especially the digital one. When buying a digital work, e.g. a graphic file, the buyer receives an NFT token, representing the property right. Tokenization breaks the barrier of a high entry threshold on the art market. Due to their uniqueness, non-exchangeable tokens may represent an interest in the rights to a work of art, which allows investors to invest in part of the work. Auction houses and artists are beginning to allow this form of investment in both tangible and intangible art. 

## Tokenizing a business

If you want to create your own tokens, at the very beginning you should seriously consider what they are for and what function they should fulfill in the project. Legal issues such as the choice of the type of tokenization and the legal form of the issue are extremely important in the process of transferring your business or its part to the digital sphere. Consider whether you are choosing an ICO that does not guarantee the buyer any proprietary rights or an STO that protects the buyer because it is a digital representation of the asset.

The entrepreneur, deciding on tokenization, should develop individual AML and KYC procedures. It is also necessary to have a whitepaper, i.e. a report in which the entrepreneur analyzes the product or service from the technological and legal side, and describes the project and future plans for it.

Later on, when the token is already listed on exchanges it's a necessity to support its liquidity, so that investors can easily buy and sell it. For that purpose it's good to hire a [professional crypto market maker](https://empirica.io/crypto-market-making/), that will quote buy and sell orders 24/7, on tight spreads.

There are many aspects that need to be taken care of, but they all serve the protection of the investors that give their money to the project. With time this will be more and more regulated, which in this case is a good thing.