What is a token? What is ‘tokenization’?

What is a token?

Tokens on Ethereum can come to represent any and everything, as determined by the issuer of the token. This is how real-world assets like real estate, dollars, or gold can come to be traded, invested, borrowed, or lent on Ethereum.

Usually, ownership over assets is represented by a piece of paper. This piece of paper is a symbol of ownership of the asset in question.

  • House or Building: a paper deed

  • Car: a paper title

  • Stock: a paper certificate

  • Bond : a paper treasury note

  • Cash: a paper dollar/euro/peso

Similarly, a ‘ token ’ is a digital symbol of ownership. On Ethereum, you own a token in the same way you own the deed to a house. The piece of paper isn’t necessarily the valuable thing; it just symbolizing ownership.

A token is a digital possession. Bitcoin was the first digital token. A token is a digital asset that only exists on the internet. Unlike most files, images, or data on computers or the internet, tokens cannot be duplicated. When you send someone a token you cannot keep a copy yourself.

A ‘token’ is the term adopted by the blockchain, cryptocurrency, and crypto-asset world. A ‘token’ is a symbol of ownership over something. What that thing ‘is’, is very flexible. Some tokens represent US Dollars, others tokens represent Gold. Cryptocurrencies like Bitcoin and Ether are themselves tokens.

What is ‘tokenization’?

‘Tokenization’ refers to the process of defining ownership over something as ownership in a digital token on Ethereum. Companies like Circle have produced tokenized Dollars, Paxos has produced tokenized gold, and now RealT has produced tokenized real estate!

Tokenization refers to the process to which an ‘off-chain asset’ becomes represent ‘on-chain’. On-chain refers to being included in the Ethereum blockchain. This involves process requiring legal structure and compliance and depends on every jurisdiction and asset class.