BANKEX is engaged in the tokenization of real-world assets. Many people do not understand what this means, so we have started a series of articles dedicated to explaining the essentials and describing how tokenization will affect the traditional economy.
The first article is about the nature of tokenization and the BANKEX Proof of Asset protocol.
Before the introduction of currency, assets were obtained through a barter system, which meant goods were directly exchanged. For example, a house could be traded for a flock of sheep. But this inevitably led to problems where one or both actors did not want what the other had to offer, which necessitated the involvement of other secondary actors to complete relatively simple transactions. This problematic barter economy was transformed when, more than 2600 years ago, metal coins were invented in Lydia, located in modern-day Turkey. Now with a tangible measure of value, a buyer could purchase the house for a sack of coins instead of having to trade his flock of sheep or find another person with something that the house’s owner wanted. Moreover, in order to decrease the weight of carrying coins and further ease the use of currency, the Chinese invented paper money in the 7th century, and through the processes of invasion and exploration, the new economy reached Western Europe by the 13th century. Stocks, or the investment in an asset’s security, became common in the 16th century. Then State or Central Banks were created to monitor and regulate the system, and even Napoleon had begun to issue banknotes by the beginning of the 19th century. Thus of many innovations throughout history, the most recent major one came towards the end of the 20th century, when the development of the Internet allowed for remote transactions with electronic money. As a result, the added convenience has further facilitated the transfer of assets, increasing liquidity to levels formerly believed impossible.
All of the economic models and media listed above have certain deficiencies. As a result, the most advanced programmers and developers invented a new way of valuing and purchasing assets — tokenization. Tokenization is the process of transferring the information and associated values of real world assets onto the blockchain.
At first glance, tokenization is somewhat similar to corporatization: stocks are akin to tokens, rights and conditions are set out by smart-contracts, and the classic stock exchange has its digital reflection. However, tokenization is an entirely different system with unique traits. These include such features as automated smart contracts for increased conversion rates, commands for automatic transactions, and formulas for calculation of the asset price.
With the help of tokenization, you don’t even need to be at the point of purchase: all terms of the deal will be set out by the smart contract. The smart contract is a set of tasks that the program automatically carries out when the asset owner fulfills certain conditions. It then creates a valuation, or deal, which can be independently verified on the platform. Thus the essence of tokenization is the digitization of assets in an accessible and transparent manner, in order to share their value among multiple actors.
BANKEX is working on many necessary elements that contribute to the development of tokenization, such as automatic rights fixation, monitoring of objects, and security. BANKEX also solves the issues related to the cooperation between ecosystems, communities and, of course, regulatory authorities. There is a significant amount of work being done in these areas, resulting in a niche economy where a new generation of digital banks will operate.
Suppose that we need to tokenize assets of the same type, for example, B-class real estate in a shopping mall. What is the best way to do it?
It is obviously irrational to issue different smart-assets for objects of the same type. In contrast, it would be much more efficient to compile indices or portfolios with the same type of assets and high capitalization. Therefore, this process differs from the majority of versions of securitization in the set of assets. Securitization often involves assets of different quality, but in our case, assets must be homogeneous, similar to an ETF (exchange-traded fund) structure.
However, before tokenizing assets, it is necessary to set up an infrastructure that will let you launch tokenization. Therefore, many blockchain communities develop online capital distribution protocols that transfer the cash flow of the assets. These protocols have the responsibility of allowing access to the various sources of cryptocurrencies and fiat money, as well as hedging against misuse and bad actors.
The BANKEX team has developed the Proof-of-Asset protocol which connects asset-buyers with asset-sellers. Proof-of-Asset means the token released as part of the protocol is insured with an asset. It also allows for independent experts to create different add-ons like oracles, databases, and nodes. As a result, the Proof-of-Asset protocol will bring increased cash flow to the token that is issued by an originator, or asset owner.
The Proof-of-Asset protocol involves participants who control, validate and verify the transactions, which makes the BANKEX ecosystem more trustworthy.
It is essential that different protocols can work together, so special resolutions of other blockchain communities such as 0x or Bancor can interact with the BANKEX Proof-of-Asset protocol.
Tokenization is also can be performed using an Initial Smart-Asset Offering, or ISAO. ISAO is a new method for businesses (farms, stores, manufacturing plants) to raise capital using tokenization of their assets based on the BANKEX Proof-of-Asset protocol. Importantly, an ISAO may be held only when the company controls a physical asset. As a result, technology startups or research and development activities cannot be tokenized.
The emergence of tokenization is the result of the progress of human knowledge. Tokenization further facilitates the trading of assets and makes it more secure. Tokenization transfers real-world assets to the world of the blockchain, and BANKEX Proof-of-Asset protocol is the best instrument to do it. In the next article, we will tell about how the tokenization will stimulate the growth of the world economy.
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