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Tokenization Fundamentals and its Practical Implications

In recent times, the term tokenization is increasingly becoming popular. More often, organizations make use of encryption in order to protect their data. However, the use of tokenization is on the rise. In such as situation, knowing about the tokenization fundamentals is important. It will help you understand what it is exactly and why its demand is increasing among businesses.

Tokenization may seem to be complicated. However, it is quite simple. While many believe tokenization to be a security technology, it is actually much more. Learning about tokenization basics will help you know about its benefits and applications in different sectors. Let’s discover tokenization in greater detail.

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Tokenization Fundamentals – What is Tokenization?

When it is about learning the tokenization fundamentals, the first thing to know is what tokenization is. Tokenization refers to the process of substituting sensitive data with non-sensitive data known as tokens. It involves the replacement of sensitive data like bank account numbers or credit card numbers with unique identification data. However, all the vital information relating to the original data is retained.

Tokenization can help in protecting sensitive information such as bank account numbers, credit card numbers, date of birth, address, and social security number. Moreover, one can also use tokenization for securing passport numbers and driver’s license numbers.

There doesn’t exist any mathematical relationship between the original number and the token. Therefore, the tokenized data is irreversible as well as undecipherable. Moreover, the actual data that the token represents is actually stored in secure vaults. So, the tokens are indeed worthless for the fraudsters.

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Benefits of Tokenization

An important element of the tokenization fundamentals is its benefits. One of the primary benefits of tokenization is that it helps in reducing the risks of potential data breaches. Stealing the tokenized information is quite difficult. As the data cannot be reversed without the token vault, the data remains completely safe. Therefore, even if it gets stolen, it is of no use to the attackers as it cannot return to its normal form.

Another significant benefit of tokenization blockchain is that it helps businesses to foster trust among the customers. In the era where cybersecurity threats are on the rise, customers worry about the security and safety of their data. Even though online payments are increasing, many people do not find them safe. However, tokenization helps in ensuring the correct transmission and formatting of data. It ensures that the data of customers are less vulnerable to potential attacks or payment frauds. By keeping transactions secure, it benefits not only the customers but also the businesses.

The benefits of tokenization do not end here. There are still more benefits of tokenization for individuals as well as businesses. If you want to know more about its benefits, taking up a tokenization course can help. The course can help you learn tokenization concepts and dive deeper into the fundamentals.

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Practical Uses of Tokenization

One of the primary uses of tokenization is for protecting credit card numbers. However, there are several other practical applications of tokenization. Here are some of the most prominent real-life uses of tokenization.

Let’s explore and learn tokenization use cases –

  • Tokenization of Commodities

A significant tokenization example is tokenizing commodities. The commodity exchange market has witnessed a huge shift towards the standardization of agreements and electronic transactions. However, the overhead cost of paperless transactions is huge. Therefore, financial companies and start-ups are turning to the tokenization of commodities.

 Are you wondering how one can tokenize a physical asset or a commodity? Let’s take the example of gold in order to understand how exactly it works. For instance, A has the ownership of gold present in the vault. However, B has ownership of the vault itself. In this case, A is capable of offering ownership of a portion of the gold to the public through a digital token. They can maintain an ownership registry with B through smart contracts. For every token sold, the ownership gets transferred to B. The token holders can redeem their gold anytime by giving proof of their ownership through a digital certificate or signature.

  • Tokenization of Real Estate Assets

Another significant tokenization example is the tokenization of real estate assets. In the real estate sector, tokenization refers to the process of the creation of fractional ownership of an asset through blockchain-based tokens. In order to understand this, let us again take the help of an example. For instance, there is a USD 300,000 apartment. Tokenization helps in converting this apartment into 300,000 tokens. Each token will represent 0.001% of the real apartment. One can then issue the token on platforms like Ethereum that have smart contracts.

The token can be bought as well as sold on the platform by people. When you buy a token, you become the owner of 0.001% of the asset. Similarly, when you buy 300,000 tokens, you become 100% owner of the asset. However, you do not become the legal owner of the apartment. By leveraging tokenization blockchain, it is easy to tokenize the real estate assets and develop their digital representation.

  • Tokenization of Artwork

The prints of genuine artworks made by renowned artists are usually sold by the owners. Let us consider that there are 1000 prints of artwork. The company that has the ownership of the prints can tokenize it. Then the company can make an offer to the public to purchase the tokens. Each token would represent a single print. Moreover, once redeemed, you can get the physical delivery at the given address.

However, in case the value of the tokens redeemed doesn’t match a specific threshold, the token holder gets ownership of only a fraction of the print. Tokenization makes it possible to transact the prints in the fractions.

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Final Words

Tokenization has great potential to revolutionize the operations of different businesses. Compliance and security are the prominent reasons for the increasing demand for tokenization. Moreover, it can provide individuals as well as businesses with a number of benefits. It not only makes transactions safer but also quite easier.

In order to learn tokenization in greater detail, enrolling in a course can help. Choose the best tokenization course and get familiar with the significant features of tokenization.

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About The Author

Founder & CEO of 101Blockchains

Aviv is a senior-level executive with 12 years of experience in technical, operational and business roles. He has significant experience in building enterprise products utilizing Big Data & AI. With expertise in launching, running, and growing programs and projects all the way from startups to Fortune 500 companies, Aviv has worked across a number of industries, business models, and technologies. He also has a proven track record of building and managing teams, products, and business strategies.

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