As the blockchain industry continues to develop, tokenization appears the next great frontier for distributed ledger technology. More research has been published recently showing why this could be the case. This article will explain tokenization and what the researcher is finding.

What’s Tokenization

Simply put, it is an asset-backed and blockchain-based digital token. The value of the digital asset is tied to the real-world asset it represents. This allows for a completely new and dynamic market for tokenized assets. An easy example of this would be trading hypothetical tokenized Starbucks rewards for Best Buy rewards; or any other digital asset or cryptocurrency that another is willing to trade for it.

The difficult part comes with the issuance of a tokenized digital-token. For example, Venezuela issued their PETRO cryptocurrency and by decree declared it to have a 1:1 price relationship with oil. This, however, forces anyone using the PETRO to rely on the Venezuelan government to be honest in their issuance and not manipulate the market.

So how do you avoid this and approach tokenization in a decentralized manner? The answer is to maintain the digital token through impartial open-sourced code and smart contracts. Using the previous example of oil, certified flow-meter oracles (oracles are middleware which transmits real-world data to the blockchain) would inform the smart contract when a barrel of oil has been produced and the smart contract would then tokenize the newly unearthed asset by the issuance of a representative digital asset token.

Just as many will claim that their blockchain is decentralized so will those who issue tokenized assets. If you trust those centralized actors who are producing the tokenized digital asset, that is anyone’s choice to do so. There are, however, decentralized means for producing this data and their corresponding digital tokens.

Next Step in Decentralization

There have been recent findings which detail the potential impact tokenization will have on the future economy. This month, for example, Gartner, a leading global research and advisory company, found “the business impact of blockchain will be transformational across most industries within five to 10 years.” This impact, however, is dependent on tokenization and decentralization. The company goes on to state:

“As a result, Gartner believes that blockchain has the potential to transform business models across all industries — but these opportunities demand that enterprises adopt complete blockchain ecosystems. Without tokenization and decentralization, most industries will not see real business value.”

In addition to this research, another major global advisory firm, KPMG, published a report on how tokenization is set to transform commerce. The policy-research firm finds that digital tokens are seeming the next step as generation Z consumers are not only accustomed to reward systems but are willing to use digital currencies.

83% of Americans surveyed, ages 18 to 24, are interested in the future of tokens. As well, of this polled group, “82 percent of consumers are willing to use tokens as part of membership in an existing loyalty program, and 81 percent would trust the use of tokens more readily if they are already a part of a company’s loyalty program.”

In all, the ability to tokenize anything such as real estate, gold, oil, or even this article using smart contracts will prove to be pivotal for the next-generation economy.