Tokenization 101: Simplest Explanation of Tokenization and Why You Should Care

In case you’ve been living under a rock, one of the hottest topics now that the internet has matured is tokenization. In this post, I will give you the simplest explanation of tokenization. Let's dive in.

Tokenization creates a digital "ID" for real-world assets, enabling easier and more secure verification, exchange, and management, just like how an ID simplifies proving and managing one's identity.

Tokenization and ID both provide a form of representation and verification. Just like a government-issued ID or passport represents a person's identity in the physical world, tokenization represents assets, rights, or data in the digital world. Here’s how they parallel:

• Unique Representation: Just as a passport or state ID uniquely identifies you, a token uniquely represents ownership or rights to an asset or instrument in a digital format.
• Verification: IDs are used to verify identity in various transactions (travel, opening bank accounts, etc.), just like tokens are used to verify and authenticate ownership or rights in a blockchain or digital transaction.
• Security and Privacy: Just as an ID can safeguard personal information, tokenization can help protect sensitive data, breaking it into tokens that are difficult to reverse-engineer.
• Universal Use: IDs are widely accepted across various platforms (government, business, travel). Similarly, tokenization aims to create a standardized, digital form that can be recognized and traded across different platforms and sectors.

Why Should You Care About Tokenization?

Now that you have a basic understanding of tokenization, why should you care? I'm sure you've seen the video of Bill Gates explaining what the internet is to David Letterman in 1995. Just as people in the 90s couldn’t fully grasp how the internet would shape every aspect of our lives, many are unaware of how tokenization will revolutionize the financial world and ownership itself. Today, if you don’t use the internet for a few hours, you may begin to question if you are dead. As you are reading this article, all major financial institutions across the world are investing billions in establishing infrastructure for tokenization. In a few years, almost everything that you own, including your ID, will be represented by a token.

Just like the internet before it, tokenization is on the brink of transforming the world. It's not a matter of if but when, and that “when” is fast approaching.

If this explanation of tokenization helped clarify the concept for you, please share it with friends or colleagues who might benefit!