Tokenization Process

TOKENIZATION

Tokenization involves creating digital account units (tokens) that can be held in custody and transacted through a blockchain infrastructure. The tokens may not have backing assets - pure cryptocurrencies such as Bitcoin or Ethereum - or they may be backed by varied rights: property, political, economic and on products or services.

Ethereum Platform

The development of Ethereum, a distributed computing platform based on blockchain technology, and the possibility of creating smart contracts - customizable algorithms that, when executed, interact with the blockchain - enabled any individual, without the need to obtain any authorization to do so, to create tokens for the most varied purposes.

These tokens allow the free movement of units of account, invested with value, in a decentralized environment and without the need for a central counterparty for the validation of transactions. In this sense, it is possible for a company or individual to raise funds by issuing tokens backed on some right and acquirers of these can trade them later peer-to-peer.

It is a form of capital market decentralization, in which most intermediaries can be eliminated through business rules governed by smart contracts. Entities such as custodians, stock exchanges and brokers are no longer needed and transaction costs are reduced.

LIMITATIONS

Despite the innovation presented, there are several practical and legal limitations. For example, tokens representing securities are subject to country-specific regulation if they are offered publicly. Another example is the difficulty of the investors in performing their own custody of tokens, being exposed to the loss of private keys and the consequent loss of values.

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