In today’s world, everything in life is digitized. Not only were letters turned into emails, but books, news, movies, music and paintings; even our friendships (social media), attention (content browsing), affirmation (likes) and support (crowdfunding) are all digitized. In keeping with this theme, the digitization of financial services, currencies and assets is also inevitable.
Blockchain technology is one of the ways to digitize assets. It is realized through establishing smart contracts with distributed ledger technology (DLT), which is immutable, transparent and traceable. With the control of smart contracts, the transition between assets can turn into an automated digital process and it will not be affected by intermediaries.
Moreover, what are the benefits of asset digitalization?
Infinite Potential: Real-world assets are approximately 1,000 times the size of the cryptocurrency market. Most of these assets are still illiquid and the management fees are high. Asset digitization has improved the existing transaction process and it has greatly enhanced the asset liquidity, which overall improves the economic efficiency.
Improves Cross-border Trading: Blockchain is a borderless and decentralized ledger. With no intermediaries, trust is ensured through cryptographic protocols. Furthermore, blockchain is a P2P network and the transactions are made directly between parties, meaning that these transactions are made within seconds and the cost of it is neglectable.
Fractional ownership: Asset digitization will be a new economic model with the new form of ownership – Fractional Ownership. Investors can own a certain percentage of the asset, which means they can purchase parts of the asset instead of the expensive whole. (e.g. real estate) Due to the ability of investing a smaller amount of money in each asset, fractional ownership can better diversify risks and people with less disposable income can make small investments.
Improves Security: Asset digitalization can reduce human factors and eliminate the necessity of intermediaries; thus, this will greatly reduce the possible errors or manipulations. All transaction records are protected by blockchain with transparency and publicity (if necessary). And all of the mandatory restrictions can be programmed in the logic of smart contracts.
Reduces Cost: Originally, there has to be a lot of effort made in process inspection, supervision and operation control. Through asset digitalization, we can eliminate the procedure of due diligence in every layer of transactions and reduce cost.
Improves the efficiency of existing processes: Digital assets can coordinate with each other better and reduce the number of steps that must be executed. Through automated protocols and real-time transaction settlement, a more seamless process can be achieved, thereby improving the efficiency significantly.
Asset digitization is an inevitable trend and it is highly likely to change the traditional financing model completely, knowing the fact that blockchain technology can replace the costly and inefficient intermediaries. Our economic system is changing due to asset digitization, and the only thing that remains unchanged is change. So, are you ready to embrace the change? Try BSOS SUPLEX, a sustainability working capital platform for every corporates.
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