What is Tokenization?

Tokenization is the process of referencing

an asset with a "token” so that it may be more easily and quickly exchanged, or so that an existing asset may be subdivided into smaller

units of value.

Tokenization within the scope of distributed

ledger technology is the process of moving

the registry of ownership of an asset onto a distributed ledger

Moving from Possession to Registry

Tokenization within the scope of distributed ledger

technology is essentially the process of moving the registry

of ownership of an asset onto a distributed ledger or a

blockchain. Once an asset is on a ledger, the process of

ownership exchange is simplified as an edit to the ledger

that occurs on a separate cycle, ideally increasing the

efficiency and velocity of settlement and potentially

reducing operational risk at the same time. The

mechanical settlement of an asset off-ledger may take

several days, or involve the physical transfer of a large or

less-liquid asset, while the transfer of the tokenized asset

may occur instantaneously (or within whatever cycle is

determined by the controller of the ledger, which may be

centralized or decentralized).

Tokenization may use a third party that

holds the asset, though it does not have to

depend on a trusted third party. A swap,

for example, can be tokenized between

two parties that trust one another. The third

party may add value to the system by

removing counterparty risk, though it may

also introduce both default and fraud risk.

The “token” itself has no extrinsic value – it

is not a real representation of an asset on a

ledger but is rather a derivative of an asset

– an agreement to transfer title or rights

(and in some cases, obligations) to the

underlying asset. The owner of a token

does not store a token on a computer;

rather, the owner stores the keys that let

him create a new entry on the ledger and

reassign ownership to someone else.

Tokens may be intrinsic (built-in) to a

blockchain or asset-backed (issued by a

party onto a blockchain). Intrinsic tokens

are fundamental to the blockchain of

which they are a part, and are usually an

incentive/reward to validate transactions

or create blocks (BTC on the Bitcoin

blockchain, XRP on the Ripple network, ETH

on Ethereum)

Asset-Backed Tokens: Digital Representations of Title Over Physical Objects

Asset-backed tokens represent ownership

of an underlying asset. A non-digital

example of this is bullion depository

certificates, which represent the ownership

of gold bullion or coins. These certificates

act as proof of ownership for the physical

gold and are then able to be passed, like

cash, which is much easier and more

efficient than moving physical gold. Asset-

backed tokens are a digital equivalent of

this bullion depository certificates example.

These tokens are passed between parties

and these transactions are recorded on a

blockchain. An issuer is required to receive

a token in exchange for the underlying

asset.

The movement of asset-backed tokens

must accurately represent the state of the

underlying asset. In order to accurately

track a tokenized asset that originates off-

ledger (for example, a car), the physical

asset must be tagged with a unique

identification method that is associated

with the corresponding location or hash

on-ledger.

A car is already associated with a unique,

tamper-proof ID – a VIN number – that in

turn can be associated with the on-ledger

hash. If the asset isn’t already easily

associated with a unique ID, this

identification method may be a physical

secure device that ties back to this unique

hash on ledger**

Breief :-

Tokenization is the process of referencing an asset with “token” so that it may be more easily and quickly exchanged, or so that an existing asset may be subdivident to the small values of the unit ,,,

subdivided into smaller units of value*.

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