Here’s an argument for tokenizing assets on the blockchain

To crypto proponents, blockchain technology offers more than just a ledger to trade cryptocurrencies. It can improve supply-chain efficiency and transparency, provide safe record-keeping and speed up processing time in crypto transactions.

However, another facet that is growing increasingly popular with distributed ledger proponents is asset tokenization.

Simply put, tokenization converts the rights to an asset into a digital token which are stored and managed on the blockchain. Crypto enthusiasts contend the process opens up the possibility of a whole new financial ecosystem.

“This new instrument shows the true potential of blockchain technology and provides a glimpse into the future of finance for global markets,” wrote the team at Open Finance Exchange, a trading platform for alternative digital assets.

How big? Proponents argue everything from artwork to securities could be ripe for disruption.

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But to date, implementation has been spotty at best.

Singapore Airlines recently began a tokenization program for its membership miles. By turning their miles into tokens that are held in a digital wallet on your phone, the airline enables its clients to use the credits for more than flying.

“It’s still backed by fiat value but it helps Singapore Airlines have a greater reach to merchants that are willing to accept the digital tokens,” said Arun Ghosh, U.S. blockchain leader at KPMG. “If you want to stay at the hotel in Singapore, get a coffee, they [Singapore Airlines] are bringing others into their ecosystem.”

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At the other end of the scale are security tokens, tokens that draw their value from an underlying asset, with real estate seen as the sector most ripe for development.

“We haven’t see the volume in traffic or interest,” said Ghosh, referring to inquires about real estate tokenization, but added the case for tokenizing leases and titles makes sense in that they are transferred regularly, especially in commercial real estate.

But Open Finance Exchange argued that real estate is open for disruption through fractional ownership. “Going back in time, the reason alternative assets have been difficult to exchange in the first place is that we haven’t had a great means for splitting ownership, recording percentages owned, and managing sales, especially when multiple owners are involved,” they said.

“The clearing and settlement process for alternative assets can drag on for weeks. That’s pretty much the opposite of what it means to be a liquid market.” Moreover, proponents argue by tokenizing assets, especially real estate, greater transparency leads to better valuation.

Also, blockchain supporters would tell you digital transactions are cheaper than employing a middleman and can be processed more quickly.

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However, despite the growing hype around tokenization of assets, Ghosh said the idea that all assets can be tokenized is off the mark.

“Not everything is going to be tokenized. It’s a great concept, everyone wants to explore it, but statistically, we advise clients not to do it, or at least not just yet until they have the technology sorted,” he said.

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