Why Tokenization?

The typical pushback on blockchain tokenization is WHY?

The answer is efficiency. System efficiency. A step change in the efficiency of the real economy made possible by blockchain tokenization.

By removing barriers and friction around systems and markets, we'll experience a vastly more efficient economy with fewer middlemen, gatekeepers and impediments to innovation.

Blockchain based tokenization will deliver a paradigm shift in system efficiency based on two foundational pillars: limitless integration and frictionless markets.

Tokenization will overcome technical limits to integration

Take a bank as an example. The underlying system is a database built for banking services. It's permission-based and built as a MOAT. Accessible only by accounts and logins. A large bank might interact with 180 systems. It can only integrate large applications or services of say $35m in annual impact. It can't integrate smaller services or applications. Services can't be treated as composable objects. The bank’s system is not composable. It is limited, slow and closed.

Tokens are objects that can carry unlimited logic and function. They are infinitely composable. Rights, services and applications can be seamlessly integrated into systems via tokens. Tokenization will deliver an underlying bank system that's infinitely more efficient and accessible. A blockchain based, tokenized system that achieves trust, interoperability, privacy and security in a way that a MOAT based banking system cannot.

Tokenization will remove friction that prevents market innovation

Today, we design and build business and services applications for function over potential. Developers design software that can operate to a closed set of parameters instead of being open to the market. In this design thinking, tradable rights are a distant second. Market forces as a driver of system design is not possible. Why? Because the system has already been built.

A paradigm shift is to design with tradable rights as a first principle. By building applications around composable and tokenized rights, market based innovation can flourish. With tokenized rights as composable building blocks, we move from design thinking where “I need an app to start my car” pivots to “I need to tokenize my car rights so I can generate incremental revenue via 3rd party rental.” We design to remove market friction and be open to market forces.

Tokenization will permeate all areas of the real economy

To bring these concepts to life, here are 6 examples of real economy tokenization that will be possible due to the system changes that blockchain tokenization will deliver.

1. Smart things. A smart table is a tokenized restaurant table that knows it is occupied or booked. Tokenization reduces friction and means tables can be auctioned in real-time or embedded in other apps (such as Itinerary Maker). Tables are the tip of the iceberg.

2. Personal time. Tokenization removes friction around selling your time by the hour and makes it key to the efficient bundling of personal services into 3rd party plans and integrated offerings, such as those offered by Calm App.

3. Subscription services. A "Thrilled for a year" subscription token can be integrated into various websites so owners can enjoy content or services without paying separately. This model is not new but it has been hard to implement in practice due to the cost of breaking system boundaries.

4. Privilege token. A “high-net-worth-individual” token can be far more than a tokenized “referral letter”. It can allow things to be built on top of it. For example, privilege token holders can auction an hour of access to investment advisors pitching their wares.

5. Service redeem tokens. This overlaps the "smart table token" but the emphasis is services instead of IoT devices. For example a hotel room booking token allows 1) value discovery through auction; 2) value creation through packaging it; 3) value creation through integration.

6. Product ownership tokens. These come with the purchase of an item. It gives the token holder access to services, such as repair and replacement (such as an iPhone ownership token), and makes it easier to resell or rent the item.

The future is much closer than we imagine

We are already seeing myriad examples of tokenization being used to remove barriers and friction around systems and markets.

As the process of tokenization becomes easier and we move towards smart tokens as a digital primitive that’s much more analogous to a website or a mobile app, we will no longer be asking WHY tokenization?

Instead, we will be asking HOW do I tokenize and WHEN can I get started.

Author Bio

Weiwu Zhang is the Founder & CTO of Smart Token Labs. Zhang has over 9 years of experience in blockchain technology, alt currency design and trading algorithms. He has served as blockchain architect for CBA (largest Australian bank), held the R3 global architect office, and also architected 3 altcoins and 7 ICO projects.