Startups and businesses looking to get ahead and build a competitive advantage are often at the forefront of innovation and technology.
Businesses which are able to use their resources more efficiently can grow and achieve higher revenues as a result. One of the leading technologies being utilised by modern startups is the blockchain.
A blockchain is simply a way to store data, differing from a standard database due to decentralisation and several other key factors. As interest in blockchain has grown, so have the potential use cases. One such use is in tokenization, which as a process used to secure data, become more efficient and automate key processes.
Companies such as NYALA offer tokenization for SME or startup fundraising. In this article, we’ll discuss the potential benefits of tokenization for businesses and what it entails.
The Basics of Tokenization
In simple terms, tokenization is creating a digital version of a real thing. This is then stored on the blockchain, where it can be viewed, traded and moved depending on how the owner wants to interact with it. Each token is completely unique and anonymous, ensuring that the company can link it to the real thing without any privacy or security concerns.
A good analogy for a token is a casino chip. Players exchange their cash for chips when they first arrive and trade their winnings when they leave. Cash is easily lost or stolen, while the chips must always be exchanged before they can be spent. The same is true of tokens, with tokenized data completely undecipherable.
The premise of tokenisation is rooted in the concept of Web3, the proposed third stage of the internet. Web3 runs on tokenization and the blockchain to offer a decentralised version of the internet to users, improving privacy and giving users a stake in the online spaces they use.
A blockchain can store the number of tokens in a wallet, the terms of a self-executing contract, or the code for a decentralised app (dApp). Web3 and cryptocurrencies run on what are called “permissionless” blockchains, which have no centralised control and don’t require users to trust other users to do business with them.
Benefits of Tokenization
There are many benefits of tokenization, although the exact advantages may depend on the specific application of this process. Here are some of the main areas in which businesses can benefit from:
New opportunities – The process of tokenisation can open up new opportunities for businesses across multiple sectors. It has the potential to make purchases and investments more accessible and more interesting.
Saving costs – Tokenisation can help save costs too, particularly on expensive security and payment processing services. Transactions can be carried out by smart contracts, with no need for a centralised service and high fees.
Faster payments – The removal of middlemen for payment processing also means faster payments on average. Smart contracts complete transactions based on specific parameters.
Improved KYC – The KYC process is vital for regulatory compliance, and tokenization can help to make it more streamlined. For example, customer details and their eligibility for products and services can be coded into a smart contract linked to their digital wallet.
Tokenization Use Cases
Tokenization has many use cases in securing data, improving payment processing and managing financial funds. It can be used across a wide range of industries including retail, fintech, travel and even healthcare.
One potential use case of tokenisation is in fund management. When a financial fund is tokenized, it improves its liquidity and allows it to be traded 24/7. Funds are also broken up into smaller, tradeable fractions, making it more accessible to investors.