Written In Partnership With Jordan Finkle 

Completely transforming how we communicate, conduct business, and learn new information, the internet has irrevocably changed society. The ability to tokenize real world assets- that is, the ability to prove and trade ownership of things by exchanging digital tokens- may be its most impactful application yet. To date, online banking and investment platforms have increased accessibility to financial services for the average person. However, the establishment infrastructure is outdated and ill-suited for the fast-paced, ever-connected world. With the potential to bring financial services into the modern era, industry experts are excited by blockchain's decentralized peer-to-peer network, tokenization capabilities, and smart ledgers.

In a recent article, Jesse Lund, thought leader and CEO of Sprocket, elaborates on the need to innovate in the financial services industry for the sake of modernization and inclusion. Lund states, "the impeding factor [of financial inclusion] is..the legacy infrastructure of the world's financial systems that were designed in a foregone era...the social norms of today's connected world offer a completely different expectation, banking systems have simply not kept pace."

"The paradigm shift emphasizing tokenization, and other blockchain-enabled norms, will have a tremendous impact on banking and capital markets," according to Lund.

As physical assets become tokenized on blockchain's decentralized networks, the potential to completely transform how people achieve economic mobility is limitless. Blockchain technology is the fabric that enables tokenization efforts; the great paradigm shift of our time, however, is the movement toward the tokenization of everything.

The soil for this societal evolution has been fertile for some time. Many major news organizations have invested heavily in online versions of their newspapers, some even discontinuing the physical versions altogether. Similarly, as Amazon and other e-commerce platforms slowly push legacy department stores like Sears into bankruptcy, consumers are so comfortable with online buying that many of the old malls housing these iconic stores are now luxury condos.

Tokenization is the next iteration of these early instances of digital disruption to conventional commerce. Creating a digital artifact that represents legal ownership of a 'real world' physical asset, tokens can cryptographically verify these new digital assets by leveraging blockchain's core attributes, including an immutable distributed ledger as the underlying legal record of custody. 

To this point, crypto exchanges are resonating with all generations for more than just the potential to accumulate capital. Conventional stock exchanges are walled gardens where private groups of people solicit the listing of certain assets on their platform and nowhere else. In comparison, crypto exchanges are localized pools of liquidity that any group of investors across the world plugged into the decentralized network can trade on. Stock exchanges operate with an outdated and closed-off model, whereas crypto exchanges operate with a modern neural net model. 

The transformation from centralized control to open access illustrated by the evolution of stock exchanges to crypto exchanges is an archetypical example of this paradigm shift. It also speaks to why tokenization efforts are connecting with the public philosophically. 

Even the oldest commodity in the world, gold, is benefiting from this paradigm shift toward tokenization. Any person can buy and sell digital tokens representing gold in addition to tokens representing commodities like nickel, cobalt, and other precious metals. While this concept may seem outlandish at first, it is highly practical and economically advantageous; using a phone to trade a stablecoin reflecting the value of gold is much more convenient than physically storing pounds of gold. Further illustrating this paradigm shift towards tokenization, people are investing in tokens representing fiat currencies like the US dollar. Additionally, one cannot help but wonder how the increased transparency resulting from tokenizing mortgage-backed securities could have prevented the 2008 housing crisis.  

This paradigm shift towards tokenization disrupts all aspects of investment banking and capital markets too. With so much excitement and potential around the movement, thought leaders and investors are considering unconventional opportunities. Tokenization can enable investors to own a piece of a skyscraper through syndicated lending. Tokenization can also enable a homeowner or car owner to hold a digital deed or pink slip in their crypto wallet to be transferred upon the sale of the physical asset. Selling these tokens would be as easy as sending an email. 

Simply put, every physical asset will eventually become tokenized and be digitally tradable. Sitting at the intersection of conventional banking and digital assets, Lund and the team at Sprocket are intent on democratizing access to these new opportunities, while providing a bridge to the conventional world of banking too for those people (and assets) that are not quite ready to leave the old world behind yet.

NO FINANCIAL ADVICE: This article is provided for informational purposes only and should not be interpreted as investment advice. All investments involve the risk of loss. Any reference to an investment's past or potential performance is not, and should not be construed as, a recommendation or as a guarantee of any specific outcome or profit.

Advertising Disclosure: We are reader-supported. We may receive compensation for some of our stories, but the opinions are the author's own. Thank you for supporting our content.