The assessment and experience with blockchain are ambiguous. In order for the megatrend to become truly breakthrough, there is still a lack of successful case studies. Moreover, this topic is still being discussed in too technical terms. However, the breakthrough of such an innovation as blockchain can only happen when a large number of users use this technology and recognize its clear advantage, without the need for in-depth knowledge of the basic technical details.
Many people send emails but have no idea about the technology behind them. Blockchain is also a basic technology that should function simply and reliably in the background, without requiring users to understand in detail what is happening.
The problem is the lack of user experience in the blockchain
For the blockchain to be successful, it is necessary to focus on the application possibilities, not on the technology.
There is a concept of so-called smart contracts in the Blockchain. Smart contracts are small software fragments that provide processing of technical business processes in the blockchain and their storage there. The most reasonable thing is that these contracts can make decisions on their own. Have you already developed your first smart contract and reproduced it on the blockchain? No? Don’t worry, because most people thinking about blockchain in industries like banking have never drawn up contracts. These days, users without a technical background quite rightly expect to be provided with a tool that converts technical details into program code without the need for programming skills. Unfortunately, there is no such tool for the blockchain yet.
Tokenization can serve as an example of the use of smart contracts.
Tokenization and Blockchain
In the financial sector, tokenization as the transfer of “real” assets (funds) to the blockchain is one of the current trends in digitalization. This opens up huge opportunities, and will largely determine the future of capital markets.
The term “tokenization” is the designation of assets in the form of a digital process of securitization of property rights.
A large number of global assets are illiquid and usually cannot be moved, or practically cannot be moved at all. In order for these assets to be easier to trade, they must be fragmented or tokenized on the blockchain. At the same time, labor-intensive manual administrative processes and complex fee structures are eliminated.
The highlight here is that expensive assets can also be offered in smaller shares to investors with a smaller budget. In addition, blockchain technology creates a foundation of trust, with the help of which it is possible to optimally transfer, store and protect the values presented in digital form.
The principle of tokenization
If an investor wants to invest money in real estate, but he has a limited budget, he is usually denied this form of investment. This is due to the fact that with such an investment as real estate, an interested person cannot simply buy four or five square meters, or start with small amounts, and gradually increase their investments by a certain amount.
On the other hand, there may be property owners who need an amount significantly less than the value of the property in a very short time. In such cases, tokenization can come to the rescue. That is, the property is converted into digital tokens.
At the same time, each individual token corresponds to a certain share of ownership. Thus, in addition to tangible assets such as real estate, regulated financial instruments such as stocks, loans, bonds or funds, of course, can also be represented in the blockchain in digital form.
This is done by linking the smart contract program to the asset and displaying all the rights and obligations associated with it in the form of tokens. This opens up completely new opportunities for all stakeholders: investors, issuers, as well as platforms.
Scope of application: power supply
The concept of tokenization can be transferred, for example, to energy markets. Since the production of electricity at renewable energy plants is subject to temporary and local fluctuations, it is advisable to manage and organize the distribution of energy in a decentralized manner.
This function is performed by the IT infrastructure, which constantly checks data on consumption and coordinates the distribution of energy. To ensure efficient distribution of electricity, low losses and a high level of quality, as well as the safety of power supply, the concept of intelligent networks is used.
Thanks to the multi-token model, the concept also allows very small volumes to be fed into the power grid and sold in this way. In addition, the intelligent network ensures a balance of supply and demand of electricity and avoids overloads of the power grid. Blockchain takes over the management of transactions in an intelligent network. Transactions are carried out using smart contracts, and the blockchain network verifies and guarantees the integrity of transactions.
The advantages of tokenization in terms of efficiency or cost, transfer capabilities and security are quite significant. However, they will have a significant impact on stock exchanges and financial markets, among various other industries, and may also add new investment assets to existing financial instruments.
Since today most of the world’s population does not have access to high-quality investments, new opportunities for capital formation, as well as increasing its mobility in global markets, are emerging on the basis of blockchain technology. Here are their advantages at a glance:
- Free Access: People can access token assets around the world, around the clock and from anywhere in the world.
- Integrity: Once a person has acquired tokens, ownership cannot be revoked. However, it can be transferred from one person to another if the owner sells it to another person. In case of disputes, conflicts can be resolved quickly by making the proof of ownership visible.
- Transparency: Since each entry is stored in a shared and immutable ledger, illegal possession is possible. The transparency of the ecosystem ensures that every member of the Blockcahin network has a clear idea of the updated owner record book.
Reduction of fees: for tokenized assets, the participation of intermediaries is excluded, which often limit the availability of investments. Excluding them from the system creates greater clarity and significantly reduces high fees.
There are no minimum deposits: since tokenized assets offer greater liquidity with the possibility of owning shares, at the same time there is no need for minimum deposits.
Barriers to implementation
Although asset tokenization represents new opportunities for the market and asset trading, a number of challenges currently limit the implementation of this new technology.
Tokenization on the blockchain is a new concept that does not have a standardized legal framework. This has yet to be worked out. In addition, serious infrastructure developments are currently required to introduce tokenization to the mass market. From the point of view of adaptation by investors, tokenization is still a rather unknown concept.
And the fact is that the blockchain interface is still very complex. And this is the main problem: the end user does not want to encode, and does not want to deal with hexadecimal addresses. He expects applications to have a good user experience so that the services are easy to use. Therefore, it is extremely important that designers participate in every blockchain project from the very beginning to make sure that the look and feel of the solution are suitable.
Blockchain Concepts Need Interdisciplinary Teams
In our projects, we notice again and again that non-technologists become very quiet as soon as it comes to blockchain. Because no one says openly that they can’t figure it out, because of all this “technical language”. But this is what is fatal.
According to the data of Coinmarketrate.com on the blockchain universe, code is the law. This means that what is written in the form of program code in a smart contract is installed and cannot be changed later for a contract stored in the blockchain. However, technical experts should make sure that the new digital concept can withstand the regulatory requirements of the real world. If you don’t take experts in this field with you, you risk that innovative concepts will fail very quickly, because they violate the laws of the real world. Therefore, specialists from different disciplines should work together, understand each other and complement each other in projects — from an expert in the subject area, to a designer and a technical specialist.
Blockchain is always promising when several parties (preferably from different sectors) together create a new use case. The anonymity of users, the immutability of data and the openness of the peer-2-peer network help in the development of truly new services. On the other hand, it makes no sense for industry consortia to form closed circles to modernize certain traditional use cases using blockchain technology.
In this case, we are talking about the so-called private blockchains. Private blockchains can lead to increased efficiency between partners, but only between them. Open concepts, the so-called public blockchains, are really new and breakthrough.
This is still a vision of the future, but if we go further, the blockchain technology offers tremendous potential.
The technology has the potential to create an Internet of Values (IoV). IoV stores information about physical and intangible objects of value of various types: traceable, permanent and unchangeable. The goal is to protect values from manipulation in the long term. In combination with digital currency, it is additionally achieved that such values can be quickly and safely transferred from one owner to another.
This scenario shows that the right ideas for new services, consistent focus on customer expectations, good design, as well as stable and reliable technical implementation are important success factors that will help the blockchain make a breakthrough. And not only that: if the technology is used correctly, it can radically change our lives.
If the blockchain community has done everything right, end users will not know that they are using blockchain, but will simply be happy with new, faster and cheaper options that make their lives easier and safer.