What is tokenization and why does it need blockchain

What is tokenization and why does it need blockchain

What Is Tokenization And How Does It Work

Tokenization is understood as the process of replacing important information with a set of unique identification symbols (its can name a token or label) containing all the required message details. Thus, a digital passport is created, which can receive any tangible and intangible asset or some action, for example, payment, or time, or legal status..  This passport is a unique digital code that can be further transmitted over communication networks. Tokenization potentially may be exposed to all types of economic activity and all types of assets. This is fundamentally different from ICO..

Tokenization can take place on any one intended for of this platform. For example, the Artex platform was developed to tokenize art objects, and real estate – Atlant platform. However, on most of them the process of creating and circulating tokens is opaque and poorly protected. Only blockchain today offers a transparent and secure procedure for issuing and circulating tokens.

Exactly so tokenization is often understood as the implementation of blockchain into production processes technologies.  This technology is considered revolutionary by many., insofar as can forever change the way people interact.

Benefits of blockchain tokenization

Tokenization, s help which can minimize the amount of data required to conduct business has become a popular way to improve the security of credit card transactions and e-commerce transactions. She allows optimize costs and simplify compliance with existing standards and regulations.

Simple and secure payments

Tokenization simplifies the process of paying for goods and services and makes it secure. Having emerged as an infrastructure that provides financial settlements with digital currencies, the blockchain has perfectly proven itself in quality universal payment instrument.

Decentralized security

The number of companies whose servers have been compromised is enormous, as is the damage caused by cyberattacks. The decentralized nature of blockchain makes it meaningless for common types of attacks such as phishing or DDoS attacks that require work central server. As a rule, criminals do not have enough resources in order to attack all computers in the blockchain.

High reliability

The decentralized nature of the blockchain is also the backbone of its reliability. If a failure occurs in one of the links, others take over its functions, ensuring the continuation of the entire chain. This property is especially important for companies that supply goods and services to customers who can be confident in Tom, that their payment will not be lost and the goods will be delivered on time.

Potential Applications

The listed advantages are of absolute value and constitute the potential that will allow blockchain-based tokenization to find application in many industries and services, wherever direct and reliable data exchange without an intermediary is required. The use of blockchain increases the accuracy of product tracking, the efficiency of raw materials supply, and the transparency of operations. With its help, you can establish business relationships with partners to whom, for one reason or another, there is no trust. Ensuring the interests of the parties will be entrusted to smart contracts. This will make it possible to dispense with the services of escrow agents and will become an important incentive for the further development of international business..

Payment systems

When payments are tokenized, a digital label (token) receives confidential data (bank card or account number). The token is not associated with a specific person or their account, so its processing, transfer and storage is safer. Tokenization process, built into payment processing already is widely used by large online stores, especially if they have a repeat payment option. Also, tokenization is an a major component of payment systems offering one-click or mobile payments such as Apple Pay, Samsung Pay, and Android Pay. Tokenized their payment systems and apps like Venmo, as well as Uber and Lyft.

Sharing services

Sharing services such as Uber, Airbnb, and Lyft emerged after 2008 and today have a combined capitalization of more $ 335 billion. In the USA alone, about ¾ population. For companies of this type, the reliability of communication within the system and the security of personal data of users and payments provided by tokenization are vitally important..

Health insurance systems and medical institutions

Universal computerization has made the problem of preserving confidential patient data very acute. Thousands medical institutions suffer from information leaks. Tokenization of personal medical records helps to solve this problem..

Real estate market

Today, data on real estate owners is not confidential. The only exceptions are the most expensive objects. Tokenization will make the privacy process cheaper. In addition, it will be possible to directly conclude transactions, bypassing intermediaries., buy any share in real estate, as well as ensure the fulfillment of contracts, reducing the cost of lawyers. In Ukraine, for example, the development of a system has already begun that will allow tokenize real estate entered in the state register and subsequently conduct purchase and sale transactions with it..

Financial market

What is tokenization and why does it need blockchain

Immediately after tokenization asset, by model cryptocurrencies, can be traded on the secondary market and becomes an object of purchase and sale. This presents tremendous opportunities for modernizing financial markets and the investment process. Investing money will become cheaper, safer and more affordable, and will also allow new participants and new assets to be involved in the field of financial transactions, such as time or legal statuses.

Tokenization issues

Like any technology, tokenization has more than just benefits. Its implementation is accompanied by a number of problems..

  • Tokenization requires the development of an efficient transfer method text into the code that is used to create the token. The procedure must be verified according to uniform rules, which do not yet exist;
  • There is no single standard for forming a token. On different systems, it can be a set of random numbers or the result of encryption.  In the latter case, there is a danger of breaking the encryption key;
  • To improve the efficiency of tokenization in payment processing, it is necessary to develop a universal standard, which at least the main payment systems must adhere to;
  • User safety is only enhanced after data were tokenized. but for this company must store and process the original confidential information. We need to find ways to secure customers before issuing tokens;
  • In many cases, when it comes to tokenization of payment systems, in order to confirm the payment, a reaction to the message sent by the system is necessary, which is not subject to encryption, and therefore is a source of risk. It is necessary to change the infrastructure of the system to encrypt all information.  

Tokenization can wholly change the traditional ways of storing and handling traditional assets. Gradually emerging from the introduction of tokenization new the business model will make the process of transferring information easier, faster, cheaper and more reliable. The revolutionary potential of the technology is just beginning to be recognized by the business community, but its widespread adaptation will require still a lot of time.

What is tokenization and why does it need blockchain

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