COLUMN: How tokenization can reinvent traditional markets
There is no doubt
about it: blockchain technology and cryptocurrencies are going mainstream and
quickly getting traction despite some bumps in the road. This technology opens
doors to people and changes the landscape the way e-commerce once transformed
our everyday lives.
Jeff Bezos, who
founded Amazon in 1994, is now the world’s richest person. He introduced a concept
that changed the way we see things. Similarly, tokenization has the ability to
completely reinvent traditional markets, making them more accessible and
First things first: what is tokenization?
simply put, the process of taking any sort of sensitive information such as
credit card information, bank account numbers and other data and jumbling the
numbers randomly to get a unique sequence (an indecipherable token), for safe and secure
storage. Now, I realize I said simply
there, so let’s break it down.
I have a key to my
house, and every month I lose my key and have to go to the one person left in
the world who can make a copy. Rather than leave my loved ones at risk for a
break-in, I invest in an electronic code for my door.
If you’re still
with me, essentially, tokenization is taking traditional “keys” for personal
information, and putting them into a code lock.
Where can tokenization benefit investment?
investments are a great way to provide liquidity and create assets open to a
new class of investors. It includes those who have the nose for the latest
investment trends but have limited financial means to tap into that opportunity.
There are many
different use cases for this new type of investment, including art, real estate
and even a whole new asset class – tokenized VC portfolios.
of assets came along, investing in both art and real estate was a surefire way
for investors to profit. With art, the price almost always rises and in real
estate it could fluctuate dramatically to eventually rise again. Both art and
real estate investment have traditionally been open exclusively to affluent
individuals. This has perpetuated their wealth and left the rest on the
sidelines of investing.
the potential to open these assets and welcome a new type of investor to this
upper echelon: from individuals traders to amateur blockchain investors, from
technology aficionados to your grandmother. Its potential has gone way beyond
art or real estate. You can now tokenize your future.
In the art world
prices are constantly climbing and masterpieces are auctioned off at sky-high
prices. In 2010 a Picasso was sold for more than $100 million.
Its value will likely continue to increase as time goes by. But few can profit
from it. Art collectors are among the select few who can do that and becoming
one of them has not been simple. Most people could not even dream of owning a
major piece of art.
Tokenizing art has
the ability to change this though. In 2018 the famed auction house Christie’s in New York sold its first piece of
art paid for entirely via blockchain. The piece was sold through Artory, a
blockchain-secured registry using decentralized ledgers to allow investors to
anonymously buy art while still tracking histories, provenance and more.
allows people to own a part of a masterpiece using security tokens. Imagine
taking a $10 million Monet painting, and splitting it into an infinite amount
of virtual pieces without actually tearing it apart. Buyers can purchase many
pieces of the painting, similarly to how they would purchase company shares on
a traditional stock exchange. This allows virtually anybody to invest small
amounts of money into something traditionally out of reach for most and to get
substantial returns. This opens up a previously inaccessible asset class.
While art and real
estate are the more obvious examples of asset tokenization, there are other,
more innovative and secure ways to tokenize.
Tokenization can be
a gateway to both being a part of something bigger and to making financial
gains. What better way to do it than to invest into promising startups that are
on their way to become the new Ubers and Reddits of the world?
But just like art,
startups are also hard to invest in unless you have hundreds of thousands or
many millions of dollars at your fingertips. Traditionally venture capital
funds do this type of investing. They, too, face a challenge by having to wait
five to 10 or often more years to see a company go public or get acquired by a
larger company. A VC fund profits after a successful exit but the capital gets
locked in for years.
There is a way to
solve both problems through tokenization. When a venture capital fund’s startup
portfolio gets tokenized, potential buyers receive a piece of what could be the
next Airbnb. This list of new buyers doesn’t have to be limited to professional
investors and wealthy individuals, it can and should include virtually anybody.
If you have a
platform which creates a secondary market for these tokens, you can democratize
investing into startups. A platform like that will enable everybody to get
access to future technologies, from self-driving cars and space exploration to
artificial intelligence and blockchain.
We have been
working on creating a platform exactly like this. At VNX, we want to not only
help people get access to tangible, reliable and transparent assets but also to
unlock liquidity for VCs who wait years to see their efforts come to fruition.
We really believe
in creating a community, a trusted ecosystem for technology lovers of all
calibers, where everybody wins.