What is Tokenization and What is its Purpose?

Blockchain technology is associated with cryptocurrencies, but it is worth knowing that it is not always the case, their use is much wider. When getting to know blockchain technology, it is worth finding out what tokenization is. To achieve this goal, we provide a handful of information on tokenization in this article.

What is Tokenization?

Tokenization consists in creating so-called tokens and assigning them to a specific object or project. Tokenization has great potential, because thanks to the use of blockchain technology and smart contracts, it is possible to safely and low-costly transfer tokens between one holder and another. Thus, the tokens can be a confirmation that a given asset belongs to a given person.

It is worth noting that tokens are not the same as cryptocurrencies. The two terms cannot be used interchangeably (they are not synonyms). Both cryptocurrencies and tokens use blockchain technology, but they do it differently. Cryptocurrencies have their own blockchain, while tokens use ready-made solutions and previously existing blockchain technology. The main difference is that cryptocurrency is a means of payment and the token is not. Tokens are created using smart contacts, there can be an unlimited number of tokens on each blockchain network.

What is the Purpose of Tokenization?

Fungible tokens are characterized by the fact that they cannot be distinguished from other tokens on the same blockchain network. They all represent the same value and therefore can act similarly to cryptocurrencies. They can simply be used for payments and the exchange of value between users.

Contrary to fungible tokens, there are non-fungible tokens (NFT) which are completely unique tokens. They serve as certificates of authenticity. With their help, it is possible to certify that the owner of a given token is the owner of a specific asset represented by a given token. Currently, the NFT industry is developing very strongly and is gaining more and more attention, as well as for cryptocurrencies. NFTs can certify, for example, the possession of digital assets, precious stones, works of art, or even... real estate.

The main advantage of tokenization is that it is a certification method that is extremely resistant to attacks and forgery attempts. For the sake of simplicity, tokens can be interpreted as something similar to "virtual securities".

The article was written in cooperation with Norion - tokenization platform.