Tokenization of assets, the future of the purchase and sale of goods

Tokenization of assets, the future of the purchase and sale of goods

The advance that technology blockchain o Blockchain has been giving people’s daily lives so great that we already see it in almost all scenarios of our lives, and the fact that 76% of all companies in the world carry out activities related to with its application in its processes it is a demonstration of how current and transcendent the subject is.

Indeed, according to PwC Spain, 20% of companies have begun to investigate about blockchain, 32% are in the development phase, 10% in the pilot phase, 15% in progress, 7% paused and only 14% have not carried out any management aimed at research on the use of this technology in their processes or how it could be implemented in its operations.

We have already talked in the past about the benefits that the use of the block chain gives in the management of companies: transparency, speed and simplification, security and trust, traceability and cost savings, are just some of the benefits that have made sectors such as health care, real estate, music, Internet of Things (IoT), insurance, travel, philanthropy, smart contracts, among others, apply it.

The fact that the transactions carried out with tokens do not need a third party to act as an intermediary, thanks to the security offered by the blockchain, it is carried out as if it were an online bank transfer, with the difference that since cryptocurrencies are decentralized they do not they do not depend on banks or governments, the costs are lower, the transactions are almost immediate, and they are recorded publicly and transparently.

Companies like Apple use it to patent personal data brands; the Asian Amazon, uses it to track luxury products on its e-commerce platform; United Healthcare to improve medical directories for insurance claims purposes; Samsung, to improve supply chain management in the shipment of electrical products; Walmart uses it to track the movement of produce from farmers’ headquarters to stores; UPS, for logistics management and monitoring; FedEx Express applies it to resolve customer disputes; Toyota, to improve autonomous driving technology; and, Google to strengthen cloud service security and data protection; among others.

Asset tokenization

And it is that this advance of the blockchain in everyday sectors of life it advances so fast that developments are already being made for the tokenization of assets, which is nothing more than represent a property right over a tangible or intangible asset in a private registry for legal purposes, since it is not documented by the Administration, as in the case of the Mercantile Registry or the Property Registry; but which in turn is public or semi-public for technological purposes, materializing said representation in unitary accounting entries called tokens.

These tokens will be linked to a specific account called a wallet or purse, which will allow them to be owned and transferred, so the legitimate owner of the wallet is the one who stores and controls them.

Tokenization can be applied to any asset, tangible or intangible, such as real estate, works of art, business operating results, intellectual property; and can benefit various economic agents from individuals, institutions or companies of any size.

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Countries such as Switzerland, Singapore or Estonia are where the development of this technology is being supported the most. In Spain, as in many other countries, it is already possible to buy a home with cryptocurrencies, however the traditional purchase system is still maintained, since in the Spanish real estate sector, the tokenization of a property right or co-ownership of a property, It does not imply that the owner of the tokens is the same owner of a property right over the property, since the property and other real rights over real estate are collected in the Property Registry so that they can be effective against third parties. There are already platforms specialized in the tokenization of real estate assets such as BLOCKSQUARE from Slovenia and TOKENCITY from Adventurees.

Opportunity for the real estate sector

Let’s imagine for a second an owner (individual or legal entity) of an asset who wishes to obtain short-term liquidity and transfer part of his profits in the business to investors in exchange for that liquidity. If we were talking about a property, the person could, through tokenization, generate as many tokens as they find interesting for the offer, this being the business scenario:

Starting from the premise that the property is located in a beach area like Cancun, where the average nightly rental price is US$100 and the occupancy rate is 70%, we could say that out of the 30 days of the month the property would be leased for about 21 days, we would have:

  • Estimated monthly rent: US$ 2,100 net (less expenses)
  • Estimated sale capital gain: +10% of the tokenization value (subtracting the purchase and sale expenses)
  • Duration: 5 years
  • ROI: 17%
  • End: sale of the property (off chain)
  • Number of tokens: 1,000
  • Current value of the property: US$300,000

In order to simplify the example, we will consider that the number of tokens represents 100% of the property. Therefore, each one costs US$ 300 and represents 0.1% of the credit right on the rent of the property. Tokenization would be inescapably linked to Blockchain technologies, understood in their broadest form, as decentralized networks (Ethereum platform, cryptocurrencies, tokens and smart contracts).

In this way, the owner could obtain immediate liquidity by offering an attractive asset for income, but also making it affordable to small investors who will see their exposure to risk as small.

The same can happen with works of art, personal property, intellectual property, among others.

It is not necessary that tokenization opens the doors to an exciting world, more liquid, open, transparent and, above all, efficient, and this process is already advanced in some countries, so the important thing is to adapt the legal systems of each country to regulate this form of business and thus avoid illegal situations where it can be used for money laundering or other illicit activities.