1. What is tokenization?

Tokenization is the process of turning things into digital assets.

Assume you have a farm that is worth $1 million. It has a big barn, cows, rabbits, a hedgehog — you name it. All of a sudden, you are desperately in need of money, you can sell that farm the old way — fill out the paperwork, wait for an offer, close the deal, etc. But what if you need less than $1 million and would prefer to keep most of the farm to yourself?

Imagine digitally printing 1 million tokens under the symbol “COW,” for instance, where each COW is worth exactly 1% of your property — or any other amount, just as long as each token represents a certain share of the underlying asset (in this case, your farm).

Technically speaking, you would be developing an algorithm that would be implemented as a smart contract on a blockchain. This algorithm defines all the features of your future token: its value, quantity, denominations, name, etc.

So, how do we actually get those COW tokens out there so that they can be freely bought and sold on different exchanges? For that, we need a platform that supports smart contracts. Ethereum would be the most popular choice. Rather than getting into the technical details about how tokens are created and getting too far off topic, let’s just say you’ll need a smart contract template, a text editor and an Ethereum wallet address.

Voila, COW tokens are now in circulation! Technically, they are ERC-20 tokens — basically meaning that they are powered by Ethereum blockchain. Now that they have entered the market, their value can either go up or down in accordance with demand.

See how blockchain can allow us to tokenize things now? We took a farm and created its digital representation that exists on a blockchain. In short, this farm is now a tokenized asset.