Now that everything can be tokenized, banks are taking notice

There is an estimated $256 trillion worth of assets in existence. These include gold, oil, stocks, and real estate, among other things, which people are investing in all around the world. Notably, though, many of these assets are still illiquid, physically difficult to subdivide or transfer, and are transacted via a paper trail. Today, how people see and trade these assets is becoming outdated as a new form of managing assets takes shape.

With the advent of the blockchain, asset ownership is slowly beginning to move from analog to digital. Over the last year, the launch of countless initial coin offerings (ICOs) have proven how successful owning something on the blockchain can be. It has also shown that almost anything can be placed on the blockchain while everything of value can be tokenized; material items including homes, but also immaterial things such as knowledge, genetic data, and ideas.

It’s worth pointing out, however, that not everything can be placed on the blockchain. Last year, it was reported that tea, juice, and vape companies had added the word blockchain to their names in a bid to profit from the Bitcoin craze. Whereas, some of the most bizarre cryptocurrencies have since disappeared because they were either too niche or scams.

Yet banks are steadily beginning to take notice of this, which could see the banking sector undergo a disruptive change. Consequently, this could either mean the industry falls behind or is able to leverage the technology for it and its customers’ advantage.

What is tokenization?

Tokenization is the process of converting rights to an asset into a digital token on a blockchain.

With the idea of tokenization gaining popularity, financial institutions may see themselves turning their attention to this market as they figure out how they can manage assets via tokenization.

Not only that, but according to Julia Krauwer, an innovation specialist at Dutch bank ABN AMRO, the biggest promise of tokenization lies in the increased liquidity of assets. Assets that are difficult or expensive to trade, can be turned into easily tradable units.

“In addition, blockchain-based tokens can be divided into smaller pieces (divisibility) and allow for co-ownership of assets that would not be interesting or obtainable for individual market parties,” Krauwer says. “Tokens furthermore provide the opportunity to add any type of data that can help potential buyers make their decision.”

With tokenization already providing niche propositions for the trading of an array of assets such as real estate and personal data, the idea of tokenization in a broader sense could impact the way individuals manage their underused assets. It is because of this that Krauwer questions why banks can’t help their clients get the most out of their assets. “Not only the money in their bank account, but also an underused car, a house already paid off, or data generated through a website.”

What do banks need to do?

For the financial sector, it’s no longer a case of simply sitting on the sidelines and expecting no impact from the rise of the token economy. In order to remain relevant, action needs to be taken to explore this phenomenon further.