How Asset Tokenisation Can Liberalise Investments

This world is already becoming a reality thanks to the blockchain technology

How Asset Tokenisation Can Liberalise Investments
Автор: Aleksandar Aleksandrov

Imagine living in a world where you could easily sell one-thousandth of your apartment to, for example, a hundred people or, in turn, make a micro-investment in someone else’s property by purchasing one-thousandth of it. This world is already becoming a reality thanks to the blockchain technology on which Bitcoin and other cryptocurrencies are based, and lately - many other things as well.

Blockchain is a fully transparent and decentralised system for data entering, which works as a one-of-a-kind public register that is completely independent from any form of central authority. Cryptocurrencies can be created on its basis, but what is more - communities or companies, securities or real estate, even works of art and diamonds can be managed.

Let us imagine that you want to invest in a real estate property but you have a very small amount of money - for example, around BGN 1,000. Or you want to invest in that asset BGN 1,000 once every few months. Obviously, with such resources, you cannot buy any housing, land or even a garage. This is how the

Traditional Market

for real estate properties has been working for centuries - what is sold are entire housings, and not for example one or two square meters of them. On the other hand, if you have some kind of a property and you need money, you could sell it. The problem is that it can be estimated at BGN 150,000, and you may only need BGN 10,000 and not want to part with the whole asset because of this. Again, there are not many opportunities on the traditional market. Just because it will be hard for you to sell one corner of your living room or kitchen, which is worth the amount you want.

Asset Tokenisation is about to change all this. This concept has emerged in connection with the blockchain technology, which has become popular in recent years with the rise of Bitcoin and other cryptocurrencies. In essence, tokenisation digitises the ownership rights of a certain asset, turning it into the so-called tokens. Most often, blockchain and smart contract platforms based on it are used for that. The most popular of them is Ethereum - a project whose creators practically came up with the idea of “smart contracts” and to whom many predict success like the one of Google or Facebook.

Let us go back to the aforementioned example with your apartment worth BGN 150,000. If you “tokenise” this property, you can turn it into, let us say, 150,000 digital tokens, each one of them worth BGN 1. Once you have posted them on a platform like Ethereum (the so called ICO or Initial Coin Offering), they can be acquired and sold freely, under

Clear and Transparent Conditions

Just like anyone who wants to can very transparently trade bitcoins from multiple Internet stock exchanges at the moment. If, for example, someone purchases a token, they will own a 150,000-piece of your property. If they buy 50,000 tokens, they will become the owner of one-third of it.

What is more, you will be able to define in advance the rules on how the relationships among the future owners will develop. For example, you can announce at the very beginning that you prefer to continue living in this housing, and the token owners can trade with tokens, but they cannot live with you or make parties in your living room. Here lies a potential problem - token buyers

Do not Become Legal Owners

of the respective asset. Blockchain works flawlessly and will always guarantee that no one can remove or change the information about the tokens you own from a certain asset. Technologically, the concept works well. However, what is missing is a legal basis to guarantee token buyers that they will not be deceived. No country in the world has yet introduced such a regulation.

The second problem is that some types of tokens, which give buyers rights similar to those of shareholders, are at the edge of securities legislation. Financial regulators in a number of countries around the world are already indicating that they will treat this type of token “listings” as a circumvention of regulations, and in some countries they are strictly forbidden. This, however, does not apply to the so called utility tokens, which do not give buyers an ownership status and voting rights, but mostly give them certain rights to use the respective tokenised asset.

This industry is developing extremely dynamically and the regulation of the sector will change in the future. In all cases, however, the prospects for asset tokenisation are really promising. Many believe that it has a potential to liberalise investment by making it accessible to the average person who wants to make a micro investment in an asset or sell a small part of their property. And this, in turn, can have a positive effect on the economy as a whole, creating vast new opportunities for a small business.

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