Tokenisation: How to take advantage of it
Tokenisation is one of these words that is often used, but can mean different things to different people. So, let’s start with an all-embracing definition which we will deconstruct later:
“Tokenisation refers to a process by which a piece of sensitive data, such as a credit card number, is replaced by a surrogate value known as a token. The sensitive data still generally needs to be stored securely at one centralised location for subsequent reference and requires strong protections around it. The security of a tokenisation approach depends on the security of the sensitive values and the algorithm and process used to create the surrogate value and map it back to the original value.”
While that is a real mouthful, broken down it’s not quite as bad. But, despite being a precise definition, it doesn’t indicate the most useful aspect of tokenisation.
Yes, if you want to store specific, sensitive information you can certainly do this using a token. One of the great things about the blockchain – and this is by no means precise, but is useful as an analogy – is that for each transfer of value there is another piece of information that can be stored with it.
Your bank card number, as our definition says, can be stored within a token, which can only be accessed by you. Or, if for some reason you were so inclined, you could have everyone and their dog access it.
More importantly, though, one of the best uses of the blockchain is as a precise information recorder. Go back to the beginning of business as we know it in – guess what – medieval Italy. Shares in boats were very common and were used to raise funds for their construction and voyages by selling shares in the potential proceeds.
In Britain, before the 1800s, the division of shares was not noted on boat registration documents, however, in 1823 the Shipowners Society proposed using 64 shares. The idea was later enshrined in the Merchant Shipping Act of 1854 and continues to this day.
So ‘shares’ in enterprises is a long-established and almost revered institution. Indeed, we use the word shares for precisely this reason.
So, why tokenisation? You can use the blockchain to record any number of transactions and fact immutably – in other words, permanently. You can also do all sorts of clever things with it, like have everyone everywhere able to see exactly what is recorded – or grant limited access to Mrs Blogs to only see her share. Using blockchain to store share information would be an excellent thing to do. You could detach a share and create a new holder, and retain the record of the previous owner.
Rishi Sunak’s desire for the UK to become the “go to” place for crypto and blockchain technology is falling behind. Despite one of the crypto parliamentary committees wholeheartedly supporting his vision, the underlying institutions don’t seem to be moving at an adequate pace.
Just the other week, Israel announced the following: “The Israeli Ministry of Finance, together with the Tel Aviv Stock Exchange (TASE), digital assets custody provider Fireblock and the United States software solutions developer VMware, will conduct the testing of a blockchain-backed platform for digital bonds trading. These bonds will be issued by the Ministry of Finance.”
Now, say what you like, but this is a really great step forward. It is a perfect example of what blockchain and tokenisation can do. Another is articulated by Claus Skaaning, the CEO of DigiShares, which tokenises real estate assets:
“Our clients tokenize their real estate for three reasons: digitization and automation of processes, fractionalization to reach new types of investors, and the massively increased liquidity.”
The dream is you hold something – in these cases, shares or bonds – on a blockchain. Your ‘money’ – digital currency – is held on a blockchain too, but not necessarily the same one. There will be standardised smart contracts essentially acting as escrow. The sell and buy orders are entered and, hey presto, the system does the rest. No paper, no fuss, no worries about record keeping – the transaction will be there forever, as will the record of the new holders and it can all be seen by anyone and everyone, or only specific people, as you wish.
So simple, so good, they named it twice (tokenisation and tokenization). Remember one of the real Gurus of crypto is Dr Gideon Greenspan, now resident in Tel Aviv. Back in 2014, it was he who originally said that regulation would have to come to crypto and it would be adopted by Governments and central monetary authorities.
At the time, Gideon was roundly condemned by nearly everyone. But he has since been proven to be absolutely correct.