Tokenized assets: “The next big thing” on blockchain
When it comes to “blockchain,” many primarily think of cryptocurrencies such as Bitcoin. But blockchain technology has much more potential. Find out why tokenized assets in particular could become a trillion-dollar market.
Many like Bitcoin first or NFT (non-fungible token) who think through digital works of art such as Everydays: The First 5000 Days by Beeple became hype. But blockchain technology has far more potential, such as Citibank in a latest report emphasizes.
Disruptive blockchain technology
Technologically groundbreaking innovations usually “sneak” into our lives. For example, the mobile phone. In the beginning, mobile phones focused on mere, location-independent accessibility. A little later, color displays and MMS technology made it possible to display photos and graphics, and the first, simple mobile games conquered the market. Finally, in 2007, Apple developed the iPhone with the revolutionary touchscreen, whose successor models are still state-of-the-art today.
In the mid-90s, hardly any mobile phone user would probably have thought it possible that mobile phones would always be by our side as a camera, gaming platform, health coach or social media platform less than ten years later. But blockchain technology could also develop in a similar pattern.
Because the hype surrounding Bitcoin, which made the underlying blockchain technology known, was probably just the beginning of a whole series of groundbreaking innovations. In contrast to the mobile phone mentioned as an example, Bitcoin technology will “sneak” into our lives largely unnoticed. It could address billions of end users who don't even know they're using the technology when processing payments, gaming, investing, or buying digital items.
Because analogous to traditional accounting, a blockchain is just a publicly accessible general ledger in which all Bitcoin transactions are recorded. A decentralized network of miners (the equivalent of bookkeepers in accounting) verifies transactions before they are registered on the blockchain. All these processes run in the background, meaning that the revolutionary technology is likely to develop into a trillion-dollar market relatively unnoticed.
Currently, blockchain is primarily used as a basis for crypto coins and tokens. But the underlying architecture is suitable for applications in a wide range of industries and has numerous advantages. For example:
- Data integrity: On the basis of the distributed ledger (general ledger), every transaction is securely documented. Data on the blockchain is therefore immutable and any attempt at change can be traced.
- Reliability: All parties involved must agree on transactions before they are recorded. Once the approval process is complete, the transaction is encrypted and linked to the previous transaction. Because the information is not stored on a single server but in a network of computers, it is almost impossible for hackers to compromise transaction data.
- Speed and storage: The blockchain stores data almost in real time. This enables the rapid exchange of large amounts of data.
- expenses: Administration and internal and external financial transactions and reporting are becoming more cost-effective because third parties or intermediaries such as banks or notaries are eliminated. Trust in the trading partner also no longer matters, as you can fully rely on the blockchain data.
Digital Currencies, Games, Tokens, and Private Equity
The authors of Citibank Reports Assume that in particular Central Bank Digital Currencies (CBDC) will be the driving force when it comes to getting more people to use the blockchain.
According to the Citi report, the world's major economies could have up to five trillion dollars worth of CBDCs in circulation by 2030, half of which will be tied to distributed ledger technology.
As a result of the enormous growth, people would automatically be more familiar with digital currencies on the blockchain. This, in turn, could drive the introduction of tokenized assets.
The gaming industry also has great potential: As early as 2022, there were over three billion gamers worldwide. The study assumes that a small number of the most active players from Asia will introduce the next generation of Web3 games in the coming years, thus triggering the incorporation of tokenization aspects by leading Western and global development studios.
Citibank also sees growth opportunities in the private equity sector. This is particularly connectable due to its liquidity, transparency and fractionation characteristics. According to data from Bain & Company the potential to change the way private equity funds raise and manage money. For example, by opening up portfolios to a wider group of private investors, who in their entirety have a huge capital pool that has so far remained largely unused by private equity funds. Blockchain could also reduce administrative costs and make private equity business more efficient.
Trillion-dollar market: Tokenized assets
In theory, any asset class can be tokenized. But providers of digital assets such as real estate or collectibles in particular will be among the winners of the blockchain because these industries benefit in particular from three advantages of the technology: trust, proof of complete provenance and the ability that many owners can invest in an object by tokenizing assets.
While the immediate benefits for traditional liquid financial investments focus on the clearing, settlement, custody and management of assets, have tokenized assets a much wider range of benefits:
- Liquidity: High-quality, illiquid assets can benefit from tokenization as it enables fractionation, which makes it easier to trade property. Minimum investment amounts are also falling because only a fraction of a high-quality asset is tokenized and sold.
- Sales: Tokenizing assets is efficient and saves costs, which in turn can benefit the overall return of a digital asset.
- Better access: Tokenization gives private individuals access to certain assets, such as commercial real estate or high-class instruments, which are traditionally only accessible to institutional clients or a niche group of investors.
For these reasons, the authors of the Citibank report expect the tokenization of assets to increase by 80 times by 2030 and reach a value of almost four trillion dollars.
