Tokenization is the process of creating digital versions of physical assets on a blockchain.
Tokens use smart contracts, which are trading contracts recorded on a blockchain that executes automatically when certain specified conditions are met. Wealth99 precious metals tokens use ERC20 tokens built on the Ethereum blockchain protocol. Ethereum was developed specifically to enable smart contracts to exist.
When you purchase digital tokens representing an asset, the ownership transaction is recorded on a blockchain. This means it’s guaranteed that no single authority can erase or change your ownership.
There are two main types of cryptographic tokens:
1. Fungible tokens
Fungible tokens have two key features:
Interchangeable: Each unit of the tokenized asset has the same market value and validity. For example, with Bitcoin, every unit of 1 $BTC is exactly the same. They hold the same market value, the same functionality, and are part of the same network. It doesn't matter who you bought a $BTC from. They are fully interchangeable. You can swap one-fourth of a $BTC for anyone else's one-fourth of a $BTC. Your $BTC’s one-fourth holds the same value – despite being one-fourth of different coins.
Divisible: A fungible cryptocurrency can be divided into as many decimal places as were configured when it was issued. Each unit will have the same value and validity.
2. Non-fungible tokens.
Non-fungible tokens are:
Non-interchangeable: Each NFT represents a totally unique value, so it can't be replaced with tokens of the same type.
Non-divisible: NFTs aren’t typically divisible. Although F-NFTs do offer fractional ownership of NFTs, such as fractions of expensive fine art or commercial real estate.
Unique: Each token is completely different, and has unique information and attributes.
There are also several sub-types of tokens:
1. Tangible tokens
Tangible tokens represent assets that also exist in physical form. Wealth99 precious metal tokens are an example of fungible, tangible tokens.
2. Speculated tokens
Some tokenized assets can be treated as speculative investments – including the following sub-types:
Utility tokens support the funding for developing cryptocurrencies like Bitcoin, Ethereum, and Dacxi Coin. They can also be used to purchase a specific product or service offered by the cryptocurrency issuer.
Security tokens are a digital representation of traditional security instruments. Not all security tokens allow for fractional ownership of the underlying asset.
Currency tokens are a digital representation of currency. For example, the Chinese Yuan. Other governments, including Australia’s, are actively investigating a digital version of their currency.