In the mid-90s, a digital asset is a digital entity owned by an individual or company. Examples include digital photos, videos, and songs. These assets are not tangible, meaning they have no physical presence. Today, inventions such as cryptocurrencies are part of the digital asset revolution.
Bitcoin represented the biggest change to the meaning of the term digital asset to date. The potential of digital assets being disruptive in the global market has further emphasized the existence and importance of blockchain technology.
A blockchain is nothing more than a giant network of computers that simultaneously verifies data on a digital ledger. This network enables data to be stored, unaltered, and verified via code. This technology allows people, for the first time in history, to unequivocally prove certain aspects of a digital asset. You can prove items such as ownership, authenticity, transaction history, and location without the need to involve third-parties. As such, blockchain technology ushered back in the age of bilateral exchange.
Today, blockchain technology allows us to tokenize nearly everything we own. As the world of digital assets continues to grow, also has the desire for regulators and investors to categorize the different types of tokens in existence. Token taxonomy is the classification of digital assets on the blockchain. Importantly, token taxonomy will play a prominent role in the markets moving forward because the classification of a digital asset determines its issuance and trading capabilities. For example, security tokens must adhere to securities regulations. If not, there are legal repercussions. The three main types of token classifications are:
- Cryptocurrency – This type of digital asset includes traditional cryptocurrencies such as Bitcoin and Litecoin. These tokens usually function as a form of digital cash. As such, they are decentralized and offer a true peer-to-peer exchange protocol.
- Utility Token– This type of digital asset operates within the ecosystem of a platform to derive value and complete various tasks. Importantly, it doesn’t represent any direct ownership or investment in a firm.
- Security Token– Security tokens are any token that by design represents a share of ownership or an investment in a company. Usually, these tokens are found in highly-regulated markets such as real estate, securities, or stock markets.
Digital assets such as security tokens continue to disrupt the real estate market. For example, platforms such as Red Swan allow property owners to tokenize their real estate. The firm recently partnered with Polymath to tokenize $2.2 billion in commercial property across the US. Tokenized properties offer some huge advantages over traditional real estate sales. For one, the entire sales process is faster and requires less involvement from third-party organizations. Also, tokenized properties can transfer ownership in seconds.