Why banks are looking at real-world asset tokenisation

afr.com:

Crypto usually dominates headlines as a speculative trading asset. Fortunes are won and lost in these oft-unregulated and volatile markets.

But the underlying blockchain technology has piqued the interest of banks and other financial institutions.

These institutions spend billions each year supporting and tracking investors and their millions of trades and transactions. But payments and clearing and settlement systems use old technology.

RBA’s Brad Jones sees tokenisation as a way to save costs.  Peter Rae

Tokenising real-world assets is emerging as a way for banks tostrip out costs from their back-end processes.

From art and property to bonds and commodities, tokenisation also means investors can buy, sell and exchange fractions of assets in a fast and seamless way.

Asset tokenisation means representing a real-world asset as a digital token that sits on a blockchain network.

The token itself is just a piece of computer code that records information about some underlying asset, including its characteristics, status, transaction history, and ownership.

Unlike most digital files, these tokens cannot be copied or multiplied. Ownership of them is fixed to the person who paid for it, thanks to cryptographic security keys.

When the asset changes hands, the transaction is recorded on a blockchain and the security keys pass on.

Tokenising an asset also means it can be split into many different parts, allowing people ways to buy shares in assets that were previously inaccessible due to high costs and limited liquidity.

For example, rather than buy a whole house, someone could buy one-third of a house and their ownership rights are recorded in a digital token. They could then on-sell that token – which presents one-third of a