How blockchain tokenization could change everything from investing to purchases

Published: August 29, 2018

Money, shares in a company or a piece of real estate could all be represented by tokens recorded on a blockchain.

It’s called tokenization, and it’s one of the most significant aspects in the development of blockchain technology and many say it could affect the economy as much as the development of the Internet.

Uses for tokenization

Dan Nossa, an attorney at Steptoe & Johnson’s Houston office who has studied blockchain technology, says a token on a blockchain can represent either a digital or real-world asset.

But tokenization can have much broader applications. “There are different kinds of tokens for different purposes,” Nossa says. He sees three general categories for blockchain tokens:

Securities tokens, a subgroup within asset tokens, is the most likely candidate for adoption in the near future, Nossa says. Specifically, he expects tokens representing ownership shares in private companies to become part of the landscape.

Such a development, he says, would bring major benefits, including:

Over the longer haul

“The payment and utility tokens will thrive at some point. But I believe their mainstream adoption will follow asset-backed tokens,” Nossa says.

And of the asset-based tokens, he says he expects those representing paper assets such as securities to come into use more quickly than those representing ownership of physical assets such as commodities.

Further, technological and regulatory issues will influence how quickly tokenization is adopted.

“Blockchains, on which the tokens are utilized, are still relatively slow and can only handle so many transactions per second. Software developers are working to increase the speed and volume of transactions without sacrificing the all-important cybersecurity feature of blockchains,” Nossa says.

Further, regulators and lawmakers are clarifying how to deal with the various issues associated with blockchains and their related digital assets. The Securities and Exchange Commission has made it very clear that tokens that fit the statutory definition of a security will be regulated as such. This means that in order to be regulatory compliant security tokens will either have to be registered with state and federal securities regulators or be subject to an exemption from registration. And the digital platforms on which security tokens are traded need to be registered with the SEC as national securities exchanges, alternative trading systems or broker-dealers.

“Adoption of tokenization will depend in large part on increased scalability on secure blockchain layers and the development of regulatory compliant infrastructure,” Nossa says.

To learn how blockchain technology can affect your business, contact Daniel Nossa.

Steptoe & Johnson PLLC is a U.S. law firm with core strengths in energy, labor and employment, litigation and transactional law, serving clients from its 13 strategic locations across the nation.

Kent Bernhard is a freelance writer for The Business Journals.

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