This post was originally published in an article by ZeMing M. Gao website, and republished with permission of the author.Read full text Here.
According to the Boston Consulting Group (BCG), the tokenization of global illiquid assets is estimated to represent a $16 trillion business opportunity by 2030, with tokenized financial assets such as patents to $3 trillion of that business opportunity. See IPwe’s post. at LinkedIn.
Huge opportunities lie ahead in asset tokenization and IPwe is leading the way in intellectual property.
I offer another, perhaps different perspective.
The most basic essence of tokenization is to add physicality to digital things (see: Bits & Coins – Merging Physical and Digital).
To that end, all blockchains with immutable and decentralized elements create some degree of physicality.
But not all blockchains are created equal. Not all produce the kind of physicality needed. Digital physicality is measured not only in a computational sense, but also in a network, social, legal and economic sense. And the level of physicality required rises with the degree of adoption until most blockchains become useless or are pushed to higher layers to overlay networks.
In order to represent an asset by a “sequence of bytes” that acquires effective physicality, the underlying blockchain must meet at least the following conditions:
(1) be UTXO-based (not account-based);
(2) use a corruption-resistant Proof-of-Work consensus;
(3) Unlimited scalability (it doesn’t matter if a particular application doesn’t need high TPS, because everything converges and scalability should be measured holistically, both globally and across all industries) .
(4) The new Internet base layer supports IPv6.
(5) Ultimately achieve universality (by becoming a globally recognized Single Source of Truth to ensure the credibility and reliability of asset registration).
#5 above may not be obvious, but it is inevitable. When it comes to tokenizing assets, we are not playing computer games. A tokenization solution must provide an unambiguous and trusted reality for people everywhere.
Think about traditional assets such as homes and cars that are registered with local governments. If you have multiple registries representing different conflicting sources and authorities, will the registration system work? Of course not.
Moreover, even if there is only one official registration, the whole system also does not work when real estate transactions are conducted without registration and still private persons can confidently accept and respect them. Private transactions of unregistered homes and cars do occur, but they are very rare, and even in the rare cases where such transactions do occur, they are mostly due to mistakes rather than intentional. Even with this low incidence, a whole set of regulations, titles, and laws governing property rights must be put in place to govern the transfer of property.
A single source of truth is clearly the most important feature of the public property registry system.
A local property registration system works because it represents a single source of truth. The reason it can be local rather than global is that these assets are physically localized.
But when you tokenize assets and move assets to public blockchains, “local” suddenly becomes “global” by definition. Multiple registrations of global assets to different blockchains will not work, just as multiple registrations of local assets will not work.
This is the fundamental problem of “universality of ledger”, which is the biggest weakness of the current digital accounting system. (See Triple Entry Accounting). The collapse of the FTX digital currency exchange and subsequent largely futile attempts by other cryptocurrency exchanges to “prove reserves” highlight this problem. Without a universal ledger it may be easy to prove “something”, but it is impossible to prove “not”.
Ultimately, choosing the right blockchain matters. It doesn’t seem that important right now, just because everything is still in the experimental stage.
Details: Bit & Coin – The fusion of physical and digital.
Watch: BSV Global Blockchain Convention Panel, Tokenizing Assets and Securities on Blockchain
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