Tokenization: Use Cases

The popularity of tokenization is growing as the world we know shifts into a more technological existence. Tokenization is transforming the way people conduct business online. Tokel aims to make token creation accessible and affordable to everyone through its all-in-one desktop application.

In this post, we will discuss what tokenization is, what kind of tokens are currently out there and some of the use cases for tokenization.

Tokenization: What is a Token?

A token is a digital unit of value that lives on a blockchain. A blockchain is defined as “a digital database containing information (such as records of financial transactions) that can be simultaneously used and shared within a large decentralized, publicly accessible network.”

Tokenization involves the process of replacing real-world data with an encrypted version of the data that is minted on a blockchain. This new version of the encrypted data is called a token. Minting tokens to the blockchain creates a permanent record of the data that can never be changed or duplicated.

Fungible and Non-Fungible Tokens: What is the Difference?

There are many types of tokens in use today, but it is important to look at the difference between a token and an NFT.

A token is fungible. Fungibility means that the token is directly interchangeable with another token. A fungible token has a fixed supply assigned to it when it is minted to the blockchain.

An NFT is a non-fungible token. Non-fungible means that it is completely unique and not interchangeable with any other tokens. When an NFT is minted it has a supply of one, making it completely unique. NFTs can be similar but must contain one distinctive quality that sets them apart from the others.

NFTs help to create transparency in ownership. Data that is minted onto the blockchain cannot be duplicated or altered once created. It is an immutable record that is viewable by the public. NFTs are ideal for proving identity, authenticity, and ownership. As tokenization becomes more popular, we are beginning to see many different types of use cases for tokenization. From the real world to the metaverse, tokenization is helping to improve our world by providing proof of authentication and ownership, giving us a sense of security online by protecting sensitive personal data, helping to transform the art and entertainment and gaming industries by giving power back to the artists and players, and even helping record history and fundraise for causes that are dear to us.

Tokenization Use Cases: Privacy and Security

One of the most universally used use-cases for tokenization is the tokenization of sensitive personal information to protect the user’s privacy and security online. Most business done today takes place online. Online data is exchanged and stored constantly in today’s world and tokenization is an important step in protecting the user’s sensitive information.

When it comes to security in the digital world, the way that sensitive information is handled can be impactful not only in our digital lives but in our financial and personal lives as well. Tokenization is used to protect sensitive financial data such as card numbers, account data, and transaction information as well as identifying information like social security numbers, passport information, home addresses, and phone numbers. Even personal health information is tokenized to protect the privacy of patients. Very real and painful problems can occur if sensitive personal information falls into the wrong hands. Tokenization is an important part of ensuring the security of information.

During the tokenization process, none of the original data is lost or changed but is instead turned into a token and the data within is safely locked away. When the data within the token needs to be retrieved, a unique security key is required to access the information.

Data breaches are prevalent in today’s world. Many of us have had our sensitive information leaked at some point.  In 2021 alone, over 381 million people had their information leaked in data breaches. Data breaches are not only harmful to the people whose sensitive data is exposed but can also be very expensive and demoralizing for the businesses whose databases were violated. Companies that do not take the proper steps to safeguard the information of their customers are seen as neglectful. A data breach can lead to a class-action lawsuit and destroy the reputation of the affected business. Data breaches are incredibly expensive for businesses.  In 2021, the average cost of a data breach rose from 3.86 to 4.24 million dollars, the highest on record as of yet.

Bad actors have made living by accessing private databases and selling the stolen sensitive data on the dark web. Cybercrime is a very lucrative industry and is projected to cost the world over 10.5 trillion dollars by 2025. Companies that refuse to take action and continue to improperly store their customer’s data are at risk of a devastating and expensive hack.

When a non-tokenized database is breached, a hacker can easily access, record, and sell all sensitive information within the database. Tokenization is seen as a type of data insurance because if the information inside of the database is tokenized, the hacker would have to break the encryption of each set of tokenized data individually.

Many e-commerce businesses now use a payment gateway. In this payment gateway, a customer can save their payment information. In the payment gateway software, a token is generated that can be used when the customer makes a transaction. A tokenized version of a credit or debit card will typically show the last four digits of the card instead of the entire credit card number. The last four digits are shown so the customer can easily choose what card they want to pay with but the rest of the card information is stored away safely.

The same protective measures are applied to sensitive information such as social security numbers, phone numbers, and email addresses. Our personal lives can be greatly affected if our sensitive information is posted publicly. Tokenization of sensitive data is important if we want to protect ourselves online.

Tokenization Use Cases: Non Fungible Tokens

Non-Fungible Tokens or NFTs have many uses. NFTs have become very popular the last few years as new use cases are developed and deployed. When people think of an NFT, usually the first thing that comes to mind is a digital piece of artwork that is sold on an NFT marketplace. This is currently one the most popular use cases of NFTs due to the rise of NFT art, but this is not the definition of an NFT. An NFT can represent ownership over many types of things and the possibilities are endless.

So what exactly is an NFT? An NFT is a non-fungible token. Non-fungible means that it is completely unique and is not interchangeable with other tokens. Each NFT is as unique as each star in the sky. Like stars, No two NFTs can ever be the same no matter how many are minted into existence.

NFT data minted onto the blockchain cannot be duplicated or altered once created. This creates a permanent record of the data. NFTs are ideal for proving identity, and authenticity, and also for recording a history of ownership. An NFT can be viewed as a certificate that proves ownership beyond any doubt and that the thing owned is completely unique. A work of art can be tied to the NFT through an IPFS (InterPlanetary File System) link but the NFT itself is the certificate of ownership. For more information on IPFS check out our post on IPFS.

Tokenization in Finance

Tokenization is revolutionizing how we invest and how we pay for goods or services. Decentralized finance or “DeFi” is giving people more control over their money without the oversight of a centralized entity like a bank. DeFi is seen as a financial revolution for people that want more control over their financial assets.

Tokenization is changing how people invest. Tangible and intangible assets are being converted into digital tokens on a blockchain. This token represents the asset that the investor holds ownership over. Tokens can be fractionalized, or divided into many equal parts. This means that many people can claim partial ownership over one NFT. Fractionalized NFTs lower the investment threshold which is opening the doors of financial markets to those that in the past could only invest if they possessed large investment capital.

Consumers are using tokens to pay for goods and services online and even inside of brick and mortar stores. As tokens and coins gain popularity, businesses will have to meet the needs of their customers and accept that cryptocurrencies can be used just like regular fiat currency. The financial world is adopting the use of tokens and coins so quickly that It is only a matter of time until mass adoption of cryptocurrencies as an accepted payment method becomes a reality.

Tokenization is streamlining how we raise funds for causes that matter to us. Accepting donations in tokens instead of a country backed currency allows people from all over the world to pitch in for the cause. Since tokens can also have properties assigned to them, tokens can also place the decision making power in the hands of the investors. A common example of this is a DAO. A DAO is a Decentralized Autonomous Organization. The DAO provides tokens to investors that allow the token holder voting rights. This way of fundraising not only amasses large amounts of funding for a cause quickly and without corruption, but also makes the investors direct participants in the decision making process through the power of voting.

Tokenization in Gaming

Tokenization is transforming the gaming industry. Blockchain gaming is becoming increasingly popular for many reasons and had a staggering 2000% increase in use since 2021.

Game creation studios are using tokenization as a way to crowdfund upcoming titles. People that might have in the past only been a player and supporter of a game can now be a partial owner of the title. Fractionalizing ownership of an upcoming game title lowers the investment threshold and allows players that are passionate about a game to gain partial ownership of it and help shape the future of the title.

Blockchain gaming companies are giving power to the players by allowing them to earn and use tokens as a form of voting. The players earn the tokens as they play the game which means that the players who have invested the most time playing the game will have the most votes and will feel rewarded and more invested in the future direction of the game’s development.

Tokenization of in-game items is creating lasting value for players by rewarding them with an item that will hold value outside of the actual game and will continue to exist long after the game is no longer available and the servers that once hosted the game are gone.

Game companies are also offering tokens as in game currency. This allows players to earn money while they play and rewards them financially. These players can trade tokens earned for other cryptocurrencies and even convert it into fiat currency. This style of gaming is called Play to Earn or P2E gaming and is becoming increasingly popular. Over 1.4 million wallets are interacting with P2E games on a daily basis. The overall value of P2E gaming is projected to rise to a value of over $39.7 billion dollars by 2025.

There is no doubt that tokenization is transforming the gaming industry by giving power to the players and rewarding them for their time. It is also giving the players greater rewards and incentivizing them to keep playing.

Tokenization of the Metaverse

In the last couple years we have seen science fiction become reality with the birth of the Metaverse. What is the metaverse? The metaverse is a public, virtual environment for people to interact with each other in. In this environment, people can live, work, and even play games with one another.

Many see the metaverse as a new and exciting way for people from around the world to come together and interact with each other regardless of actual physical distance.

Individuals in the metaverse can own objects and property by buying the NFT that represents the object or property in the metaverse. The metaverse is seen as a lucrative opportunity for tech companies and investors. This is attracting companies to quickly stake a claim and take part in helping shape the metaverse. In 2021, Meta was unveiled to the world as the next step in the evolution of social media. Meta is the parent owner of the social media giant Facebook and was created for the sole purpose of shifting development, creative efforts, and billions of dollars towards making the metaverse a reality.

Financial experts see an enormous investment opportunity in the metaverse. Morgan Stanley is predicting a 8 trillion dollar market value of the metaverse in China alone and expects the metaverse to replace mobile internet entirely.  Companies are buying digital land and creating digital items to accommodate the people that will soon populate the metaverse. People can buy NFTs to own land, houses, automobiles and designer fashion items in the metaverse.
Virtual real estate sales are exploding with over 500 million dollars in virtual real estate sold in the metaverse in 2021. This 500 million dollars in investment is expected to double in 2022 as the metaverse is swiftly developed into a reality. The metaverse is growing very rapidly in popularity and it is truly exciting to see if the metaverse will become the utopia that people dream of or if it will be a passing social media fad.

Physical and Digital Art NFTs

Even physical works of art are being minted onto the blockchain as NFTs that can be bought and sold online. Artists are now creating a digital copy of their physical art and selling it as an NFT. This is reshaping how the art industry does business by allowing artists that could once only display and sell their art in a physical gallery located in one location, to now offering to buyers at a global scale on an NFT Marketplace. This means that artists who in the past could once only display and sell their work in a small area, can now have a global reach and a better chance of selling. Connecting the physical piece to an NFT allows sellers and buyers to prove that the art is authentic and has a supply of one.

NFTs have brought an explosive increase of digital art and artists into the blockchain space. NFTs now make up over 16% of the global art market, with over 2.8 billion being spent on art NFTs alone. In December of 2021, the artist Pak sold an NFT for 91.8 million dollars. Every week NFTs are selling for millions. This is peaking the interest of investors, collectors, and artists everywhere that dream of making a fortune.

Creators and sellers of both physical and digital art are seeing an increase in earnings when the NFT is resold because of royalties assigned to the NFT when it was minted. Artists can now earn passive income from royalties long after they have sold the original artwork.

Tokenizing art on the blockchain is creating a more decentralized and democratic art market by cutting out the middleman, and allowing artists to work directly with the buyers and to earn a larger profit. Since the NFT proves authenticity, it is also helping to battle counterfeiting.

Counterfeiting NFTs

There are common misconceptions that NFTs can be easily duplicated and distributed. Many people still do not entirely understand the copyright behind NFT art.

Bad actors have trolled NFT owners by screenshotting the art and sharing it on social media to irritate the owner. This has led to many heated discussions about the ownership of digital art.  Screenshotting a piece of digital art does not mean that the person who screenshotted it now owns it. Many people have copies of famous art already hanging in their living room. The fact is that anyone can take a photo of the Mona Lisa and place that photo on their wall, but that still does not mean that they own the actual Mona Lisa. NFTs minted to a blockchain cannot be duplicated or altered which ensures a transparent and permanent record of ownership.  

Many NFT owners also do not understand the copyright behind the NFT art itself. A buyer can own an NFT but only the artist still owns the original copyright if those rights are not embedded into the NFT. This means that even after an NFT is sold, the artist or rights holder can continue to display it,  and create and sell items with the artwork on it. If the ownership of copyright is not embedded into the NFT, the new owner of the NFT cannot print or distribute the art without consent of the artist or rights holder.  

Artists are also increasingly concerned about copycats screenshotting and posting their work for sale as an NFT. Counterfeiting has always been a problem in the art world. As the NFT art market grows, Marketplaces are putting safeguards in place to prevent people from posting and selling artwork that is not their own. According to The Digital Millennium Copyright Act or DMCA, Infringing upon copyright can lead to fines of up to $25,000 per violation.

NFT Marketplaces are putting safeguards in place to protect creators and buyers. In 2021 Adobe announced the ”prepare as NFT” feature as a way to link content credentials to an NFT. This allows artists to link the art to their Adobe account, social media profiles, and crypto wallets. This feature is now used on the popular NFT marketplaces KnownOrigin, OpenSea, Rarible and SuperRare.

Every day NFT Marketplaces are protecting artists by taking down NFT art that violates the DMCA in a hope to crack down on those that are distributing art that is not their own. As time goes on, this process will become more streamlined and will hopefully give NFT artists and investors reassurance that their work or investment is safe from copycats.

Tokenization of Gold

Gold is one of the oldest currencies known to man and a very popular investment. It is impossible to artificially increase the supply of gold because gold has to be physically mined from the earth. In the past, the only way to invest in large amounts of gold was to go through a centralized entity like a bank or private vault. Investors worry about the possibility of banks and private vaults cutting off access to their shares in the event of a global financial crisis.

Storing large amounts of gold at home can be very inconvenient. In the past, gold owners have tried to get around using a bank vault or privately owned vault to store their gold. Many gold owners have tried to store gold at home using personal safes or even burying it in a secret location. At least one person has kept their gold under their pillow while they slept. Unfortunately, having any amount of gold at home makes the owners a target for theft.

Tokenization is changing the way we invest in gold. Minting shares of gold to the blockchain creates a permanent record of ownership that cannot be deleted or altered. Access to the blockchain is available 24/7 as opposed to banks and private vaults having specific hours of operation, so business is always open. Gold-backed tokens are tokens that represent a share of physical gold.  

Gold-backed tokens can be fractionalized or divided. Fractionalization of tokenized gold lowers the amount of capital that one needs to own in order to invest in gold. Now anyone can invest in gold in any quantity and price limit. Many gold-backed tokens already exist and are already very popular among investors. There is no doubt that gold backed tokens are transforming the way that people invest in gold. The market cap value of gold backed tokens rose to over $1 billion dollars in 2022 and is expected to grow as the price of gold rises due to inflation.

Tokenization of Real Estate

Tokenization is transforming the way people invest in real estate. Traditional real estate contracts are now being minted as NFTs on the blockchain. Tokenization of real estate allows for less third party interaction when buying land or a house. It also improves transparency because the blockchain gives owners undeniable proof of ownership over their property. All property transactions on the blockchain are transparent to the public. The NFT contract acts as an unchanging record of ownership and also records property characteristics, mineral rights, and any other properties tied to the real estate purchase.

Since a token can be fractionalized, one piece of real estate can have many owners. The fractionalized token represents a fraction of the deed. Tokenization is lowering the amount of capital needed for those that want to invest in real estate and opening the door to smaller scale investors.

Large scale investors are also excited about the world of tokenized real estate. The global real estate market has a value of over $280 Trillion dollars. Moore global speculates that if just 0.5% of the global property market were tokenized, the tokenized real estate market could be worth over 1.4 Trillion dollars in the next 5 years.

Tokenization of Artifacts

A very interesting use case for tokenization is the tokenization of historical artifacts. Historical artifacts are often found in museums but some are forever stuck underwater.  In 2019, the marine archaeology tech company PO8 began tokenizing underwater artifacts and shipwrecks that have remained on the seafloor. These artifacts are found through marine salvage explorations and are minted to the blockchain as an NFT. The item remains underwater but the ownership of the NFT can be sold to one person or fractionalized and owned by many.

In 2021, the “Artifact” project was launched by the South China Morning Post. This project is partnering with holders of authentic historical artifacts to record them on select blockchains to create a permanent record of the artifacts and their history. The Artifact project not only creates NFTs for artifacts but also for historical records in an attempt to preserve history through blockchain technology. These records will further educate future generations on the historical value of the NFT.

Recording history on the blockchain can safeguard historical information and linking historical artifacts to NFTs gives people a unique opportunity to own a piece of their own cultural history. Tokenizing historical artifacts is also a great opportunity to raise money for developing nations and social programs.

Tokenization of Tickets

Event tickets have been minted into NFTs to combat counterfeiting and scalping as well as a way to offer exclusive digital content to the ticket holder. Now tickets can be sold by the artist without the involvement of a third party ticket seller such as Stub Hub, AXS and Ticketmaster. These third-party ticket sellers have a bad reputation of adding staggering service fees, convenience fees, and facility fees to the base cost of the original ticket.  Consumers are unhappy with these practices and in 2004 Ticketmaster was hit with a $400 million dollar class action settlement for charging exorbitant order processing fees.

By cutting out the middleman, and selling their tickets as NFTs, artists are set to make a bigger profit and also give their fans and supporters a unique item to commemorate the event. Also, since the ticket is an NFT artists are set to receive royalties if that ticket is ever resold on the NFT marketplace.  

NFT tickets can also have other functions included in the NFT, such as VIP experiences, access to exclusive merchandise and private events both in real life and in the metaverse. Ticket NFTs are not only for entertainers.  In 2021, the NFL issued 250,000 virtual commemorative ticket NFTs to fans that attended games and a limited number of NFTs that fans could purchase during the playoffs.  

Luxury goods

Tokenization is being used in the luxury goods industry to battle counterfeiting. Designers of luxury goods can mint their items as NFTs. Through tokenization owners and resellers can see the authenticity of their item as well as the item’s general information,  like location of sourced materials, as well as a record of all previous repairs and owners.

NFTs can revolutionize the Luxury resale market. Tokenizing Luxury goods can help to digitize a record of ownership, repairs, and authenticity which is very important for high end brands that are often targets of counterfeiting. Designers are quickly jumping into the NFT space. In 2022, the world famous fashion house Louis Vuitton teamed up with famous NFT Beeple, to release a game with a customizable figure and collectible NFTs. Dolce and Gabanna have also released Collenzione Genesi, a collection that consisted of 4 digital NFTs and 5 NFTs that included a physical item.

There is no doubt that tokenization is helping to evolve these many industries and change how people do business. Tokenization is not possible without a token creation platform. In the past token creation has been expensive and complex. Tokel is working to meet the needs of the community by providing end to end tokenization solutions for any type of individual, group, or business.

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