What is blockchain and how does it interact with tokenization?

que es blockchain

Beyond being a buzzword in recent times, the block chain or blockchain is a term that poses a great revolution both in the economy and in other areas: smart contracts, cloud storage, automotive, real estate, etc. In this post, we are going to tell you what it consists of, how it works and what is the revolution it poses.

 

Blockchain: ¿qué es?

Blockchain or blockchain technology is a decentralized and distributed database used to record value transactions between many computers. These transactions are peer-to-peer (P2P, between individuals), which means that there is no need for an intermediary.

The digital record of everything that happens in the chain is unalterable and shared. Each block is cryptographically chained and can contain different types of information. For example: the hash or identification number of the block; the hash of the previous block, which connects each block to its predecessor and successor; a timestamp; the nonce; etc.

Its main characteristics are:

  • Decentralization. There is no central operator, data is replicated across all blocks.
  • Interoperability. The blockchain is an open platform, which allows the network to be integrated with all types of records and entities.
  • Consensus mechanism. The participants reach an agreement that contains all the rules for executing the transactions.
  • Security. Transactions are protected by advanced cryptographic techniques.
  • Transparency. All participants can see the information contained in the distributed database. In addition, it incorporates a time stamp that provides transparency and traceability to operations.

In short, it is an emerging digital technology that combines data management, networks, registration of transactions between parties, execution and cryptography.

 

¿What is the relationship between blockchain technology and tokenization?

The blockchain has the potential to revolutionize different fields and sectors thanks to its contribution in the construction of decentralized societies. Although it was born from the hand of cryptocurrencies, its applications go much further: from smart contracts, to virtual identification, through sector-specific applications.

Tokenization is one of the most disruptive consequences of blockchain technology and refers to the transformation and representation of an asset within the blockchain. This transformation consists of digitizing an object and bringing its information to a block. When this is registered, it can be exchanged or stored. During the process, a token is given to the object so that it can be handled as an integral part of the chain.

In short, tokenizing means issuing blockchain tokens that represent real exchangeable assets, such as works of art, real estate, or money.

The most positive thing about all this is that tokenization can be applied to practically anything, from a document and a bond, to a house or the shares of a company. Virtually everything you can imagine can be tokenized, but how does it work to make this possible?

 

How tokenization works

It is clear that blockchain technology can transform many industries and the way we invest or exchange assets.

When we talk about tokenizing an asset, we mean dividing it into many parts. However, some objects cannot be divided or distributed in their material state, such as a house or a car. Therefore, we create a digital asset called a token that represents it. In this way, we achieve that something with a lot of value can be distributed among many people, in addition to having more liquidity in the market.

Let's put ourselves in situation. Continuing with the example of the house, suppose that a building is worth approximately €90,000. If you have bought that building and now you want to sell it, you need to find a person who has such amount of money. However, if you have a tenth of the tokens that represent it, you will be able to find someone more quickly, since the cost will be lower.

We can find different types of tokens with specific characteristics:

  • Utility tokens. They are useful assets that provide some advantages, such as discounts or access, but do not allow the user to obtain profitability by having them.
  • Security tokens. They are regulated to real assets and are regulated in most countries. Debt tokenization can be a good example.
  • Equity tokens. They represent the shares of a company and their free transfer will only be possible without the capital companies law of that country.

In the case of the tokenization of real estate in Spain, what is tokenized is the debt necessary to acquire the property. In this way, the investors who contribute the capital receive tokens that represent the participating loan. When these tokens are issued, an informative brochure must be prepared, signed by an EAF (company or advisory agent authorized by the CNMV).

 

Conclusions on the blockchain and tokenization

Emerging technologies make it possible to build decentralized networks, immutable, secure and interconnected blockchains. Tokenization is one of the newest cases in the blockchain industry thanks to its enormous potential. In this post, we have given the example of real estate tokenization, but it can be applied to any other circumstance. Consequently, this technique will suppose the redefinition of many sectors.

Not only does it allow digital representation of any aspect of reality in a blockchain, but it also increases transparency and security, allows absolute traceability, opens the door to new schemes, decentralizes processes, ensures greater liquidity, allows holding fractions of an asset, increases transparency, and reduces intermediaries and operating costs.

Without a doubt, tokenization is one of the most relevant concepts in the world of blockchain technology. The transformation of each of the properties of a real object, as well as its digital representation, allows multiple operations to be carried out with it, from its exchange to its storage, bearing in mind that the properties will remain immutable at all times.

Tokenization goes beyond financial or economic use. Do you have doubts about its operation? Would you like to know more details? Follow us every week on our blog. At HauxT, we can help you.

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