Let’s explore the legal aspects of asset tokenization. It is challenging to tokenize assets since they cannot be divided up like a usual token, e.g. ETH or Bitcoin. The challenge lies in the transfer of rights — how can you divide rights on something like a software license or copyright for a song?

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There is currently an entire row of legal subtleties that need to be taken into account when tokenizing assets. Let’s begin our examination of the legal aspects of tokenization with an illustrative example.

Let’s take the currently popular example of music licencing. Because of digital downloads and video streaming, actual sales are a mystery to the musician himself. So the musician makes conclusions about sales based on his trust in information about the sales amounts of his works. If the rights to a musical piece are tokenized, authors will receive their share of the proceeds, which will be established electronically. And so musicians believe and hope that the proceeds from tracks or albums are correctly calculated and transferred to them. It is worth noting that licensing requires a lot of paperwork in addition to basic human trust. The tokenization of musical rights would provide many possibilities, and not only for musicians. If musical rights were recorded on the blockchain, the many participants in the creation of a musical track would own their electronic shares. Ideally, every listen to a musical track would require unlocking and payment, which in turn would be transferred to the shareholders. The shareholders would then subsequently be able to convert their shares into other investments — a car, a house etc.

There are a few additional problems related to copyright. In the real world, it is difficult to divide copyright among several owners, so this is largely pointless. It is also nearly impossible to verify the payment of copyright. This is where blockchain can help. On the blockchain, with the use of a smart contract, copyrights can be divided among several owners, so that with every use of the copyrighted item an automatic transfer of money takes place from the user to the owners of copyright shares, in proportion to their ownership amount.

But what can be done with the tokenization of assets like cars or houses? Here, things become slightly more complicated. However, the BANKEX Proof-of-Asset protocol helps solve this problem.

Copyright tokenization is the simplest possible example. Transactions always work in a precise system and according to precise rules, there are no software exceptions. But in real life, the rules do not always work. When tokenizing real assets like cars, houses, gold or diamonds, it is important to remember that problems may arise during the process. In the real life, a car can be stolen, a house can burn down. On top of that, people themselves do not always obey and follow rules.

And so, what is the problem with the tokenization of real-world assets? The key challenge for any system involving the tokenization of real assets is to verify that the token remains tied to the real asset. If the buyer of the token is not convinced that a real-world asset underlies the token, its price will fall or even become zero in the case that nobody believes in it.

The BANKEX Proof-of-Asset Protocol is modular in structure. The final module, Deal, is responsible for the legal side of the transaction. Deal consists of a chain of smart contracts for the payment and transfer of legal rights to an asset. The smart contracts implementing the legal transfer of rights to an asset will differ depending on the country of purchase of the asset. The legal block Deal may contain various smart contracts depending on the national jurisdiction:

- offline agreement signature by the client and the recording of this fact into the smart contract

- remote electronic signature or other mechanisms

- smart contract for the calculation of taxes (customs duties and other)

- smart contract for political limitations of supply

Thanks to the modular structure, any change in legislation requires changing only the part of the smart contract that is subject to the change, without a need to amend the entire protocol.

In the previous article, we discussed existing types of assets, and talked about their characteristics. We concluded that there are two types of assets: fungible and non-fungible.