The Tokenization of The World Starts Now

By Dr. Leemon Baird, Inventor of Hashgraph, Co-founder of Hedera, President of Swirlds

In the near future, the internet as we know it will fundamentally transform. What is currently a centralized, siloed Web 2.0, will morph into a decentralized, shared, and interconnected Web 3.0, in which artificial intelligence, machine learning, blockchain and distributed ledger technology (DLT) play an integral role. 

Within this decentralized, next generation internet, almost every asset in the world will eventually be tokenized and represented on distributed ledgers, allowing these assets to be fractionalized, shared, and transferred across the globe instantly and without intermediary involvement. The world will be tokenized. It is clear that this will happen, and it is already starting to happen now. Just as the invention of computers led to data migrating from paper to databases, these web 3.0 technologies will cause assets to be tokenized, tracked and traded.

We can already see a glimpse of what a tokenized world will look like. “Social” or “creator” tokens are enabling icons from a wide range of industries to engage more closely with their fan base, while non-fungible tokens (NFTs) are being used to transfer and authenticate digital art works. Additionally, asset tokenization is already helping people to fractionalize and share the ownership of real estate. The next few months will see the expansion of these and other use cases and the rapid beginnings of our newly tokenized world. 

A virtuous circle exists between data integrity and tokenization

A closer look at the development of the smartphone can help us understand the speed at which tokenization will transform business and social interactions. When the iPhone first launched in June 2007, the earliest apps were just a shadow of what it is today. Few could have predicted that what started off as a marketplace with a few hundred applications, would eventually expand into an entire catalogue of over 1.96 million apps available for download by 2021, at the fingertips of more than a billion Apple users.

Today, we do everything on our smartphones – using robust, interoperable apps for banking, work, socializing, and more. These developments have driven the explosion of user generated content on Web 2.0. With the onset of a more open internet through Web 3.0, websites and applications will offer enhanced data integrity — meaning that the information found online will be more accurate and consistent, with a directly traceable source of origin. Web 3.0 will fill a vital gap missing in Web 2.0 by offering complete trustlessness to end users.

Tokenization will develop out of a natural extension from this heightened data integrity on Web 3.0. The decentralized infrastructure at the heart of Web 3.0 will enable us to represent large swathes of society, the economy, and finance on distributed ledgers, while tracing their source of origin and guaranteeing their authenticity forever. A token economy representing real world assets will develop and thrive.

This will have the added benefit of creating increased liquidity through fractional or whole transactions, reduced costs, and improved settlement time. Ledgers will come to define the rules of asset transfer and value creation, providing a blueprint for the next generation of economic interactions.

Diverse use cases will soon welcome tokenization 

Token concepts are already transforming entire models of ascribing ownership and verifying transactions. Non-Fungible Tokens, otherwise known as NFTs, applied to digital art work were arguably the stand-out tokenization trend in 2021 that set a new standard for how to manage ownership of unique content and artwork. NFTs provided a highly trusted marketplace, in which buyers, artists, and collectors alike could buy, sell, and authenticate the ownership of value using unique digital identifiers recorded on the distributed ledger.

In payments, banks examined how to issue stablecoins for instant settlement of international remittances, providing another example of how tokenization will usher in positive economic and societal transformation in 2022. When Shinhan Bank collaborated with Standard Bank to issue and mint stablecoins in their own respective currencies for international remittances, we recognized how transferring value on distributed ledgers could provide a more cost-effective, efficient solution for real-world payment use cases, which impact millions of people who make cross-border payments every day. 

Tokenization of traditional financial instruments, such as stocks and bonds, has the power to enhance inclusivity and liquidity across the traditional capital markets, bringing about improved practices that should improve transparency, increase market participation, and eliminate settlement risks. For example, bond tokenization is improving accessibility through maintaining an accurate ledger of fractional ownership, opening up the market to potentially millions of retail investors.

In the entertainment industry, tokenization is enabling new interactions across the creator economy, enabling entertainers, artists, and sports icons to interact with their fan base via so-called “creator tokens''. These creator tokens enable fans to access unique content and unlock personalized experiences with their icons. These developments are making possible the first true creator economy, fueled by tokenization and underpinned by distributed ledgers. 

These developments are providing fertile ground for the token economy to flourish in 2022 and beyond. Entire industries will see the rapid adoption of tokens used to guarantee trust, unlock value from traditionally illiquid assets, and usher in a new era of financial inclusion that will allow token issuers to carve out their own piece of cyberspace, transforming entire marketplaces in the process. The tokenization of renewable energy certificates (RECs), for example, is having a profound impact across the energy marketplace, enabling faster, cheaper, and easier to trade renewable energy credits, carbon offsets, and other renewable energy forms. 

Looking ahead to a fully integrated token economy

Global law firms, NGOs, academic institutions, and financial and crypto exchanges, are currently exploring ways to issue and configure native tokens for a variety of compelling reasons. The tokenization of assets will make operating in traditional finance and interacting in marketplaces faster and less costly, fundamentally changing the existing processes between market makers and intermediaries.

Nevertheless, token issuance by itself will not be enough to build a fully functional token economy. What is also needed is an ecosystem of exchanges, wallet providers, custodians, standards bodies, auditors, and insurance agencies integrated with one another in order to facilitate the diverse needs of market participants. Advancements in DLT tied to interoperability will provide the market backdrop, enabling token issuers to integrate seamlessly into the decentralized economy.

We are only at the beginning of the new Web 3.0 era, and it will soon evolve rapidly to encapsulate entire industries and sectors of the economy. These new forms of conducting business will create fairer, more transparent, and more efficient business processes represented by tokens. With the turn to Web 3.0 and decentralization, everyone will soon have a stake in the token economy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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