The distributed ledger’s defining feature is that it records any transaction of assets, in whole or part, in multiple places simultaneously. In certain cases, the ledger is recorded on a chain of nodes holding blocks, or pieces, of the same information. This particular model of collective encryption forms what is referred to as a “blockchain”. What is common among all distributed ledgers, however, is that there are no centralized data stores, since all or part the ledger exists concurrently in many places. Because of this decentralized model, a ledger can be accessed at any time without need the need for a third party.
Digital distributed ledgers have many potential avenues for use. Cases of these can include using blockchain to selectively release individual pieces of potentially sensitive information, such as medical records, when needed. It can be employed in embedding the intellectual property rights for a piece of music or film directly into the data token itself. The distributed ledger even shows some potential for creating a more secure voting system, as a decentralized data pool is far less susceptible to fraud. Finally, the distributed ledger is a game-changer in that it allows for the tokenizing of assets.
Tokenizing assets involves the creation of a distributed ledger, such as a blockchain token, that is specifically suited to the role of acting as a digital representation of a real asset. This type of coin offering is referred to as a security token offering, or STO. A security token is created within a distributed ledger by a security token offering, which is itself a subset of the “initial coin offering”. This is then coded to represent some tradable asset, such as a piece of stock in a company or a share of ownership in a tract of real estate.
Tokenizing assets and the distributed ledger technology at large has the capacity to upend many existing paradigms, particularly those in the financial sector. It does this through a number of means, not the least of which is its automating of some functions of the exchange process with algorithms designed into the data chain itself. This cuts down on transaction times by weeding out middle men and consequently, in many cases, lowers the fees to execute the exchange.
The advantageous aspects of the distributed ledger, and the blockchain in particular, do not end there. The blockchain’s decentralized mode of storing information, for example, makes it a very secure choice for creating and defining assets via tokens, as its form of collective encryption is all but impervious to tampering by hackers or data miners.
An obvious use case for this feature of the blockchain distributed ledger can be found in the financial sector, particularly in the area of international payments. Since the technology has an inherently secure framework built-in, it can be leveraged to reduce the stress on financial institutions to settle transactions manually.
Tokenization with the distributed ledger also comes with a desirable level of transparency baked-in, as the rights and responsibilities of an investor are digitally stamped onto the token itself. Not only that, STO’s can takes traditionally non-liquid assets and make them acceptable for trading on a secondary market, widening the potential pool of buyers and thereby increasing overall trade volume.
A largely overlooked use case for the distributed ledger lies in it’s the potential to open the investment world up to many smaller-scale investors who would otherwise be disincentivized from purchasing value-based assets. This is thanks in large part to the inherent divisibility of the token; since a token can represent an extremely fractional percentage of a given asset, transactions can now be made at greatly reduced minimum investment cost.The distributed ledger is an exciting technology, and its many implications, until recently, have only been a theoretical. Even now, as its many applications are being more actively explored, it remains to be seen just how far this technology can go, as it is a fundamental upheaval of the centralized way that so many business models operate. It is therefore largely uncharted water, and still up for the imagination to determine future uses for this innovative new model.
If you are interested in exploring what’s possible within this dynamic new territory, consider contacting a representative at Polytree who can delineate to you what options you have for tokenizing your assets, and advise you on the wisest course for investing in your new digital portfolio.