Different Types of Tokenization in Blockchain

Mar 2, 2022
4 min read

Tokenization has been around for quite some time. It is just a matter that the world started to notice recently. Tokenization has been employed for the protection of credit card information by turning the personal data of clients into series of characters, which is not exposed to hacking. Most lately, the applications of tokenization have been recognized in the domain of blockchain and NLP with standards of NFTs. Therefore, the concern in types of tokenization has improved recently. We have covered the fundamentals of tokenization with a major focus of the following review revolving around encompassing the different tokenization types simultaneously with their advantages and limitations.

Brief Knowledge of Tokenization

Tokenization, in the most fundamental sense, would indicate the conversion of anything toward tokens. Even if tokenization obtained applications in the protection of credit card data, it has become an essential notion in the field of NLP. Tokenization is basically necessary for breaking down text in NLP for facilitating enhanced ease of learning. On the opposite hand, tokenization in the circumstances of blockchain refers to the change of real-world assets into digital assets.

It basically includes mapping information of the real-world articles onto implicit assets. The prevalence of non-fungible tokens or NFTs certainly shows the hopeful roads ahead for tokenization. With that being announced, you would be excited to know about “what are the kinds of tokenization” right now. Let us find out more regarding the different alternatives of tokenization you can find regularly nowadays.

Tokenization Types in Blockchain

When you are staring at the different types of tokenization in blockchain, you will come over digital assets that are fit for trading in the ecosystem of a blockchain plan. The various alternatives of tokenization with respect to their importance in blockchain introduce platform tokens, governance tokens, utility tokens, and non-fungible tokens or NFTs.

Platform Tokenization
Platform tokenization basically indicates issuing tokens to blockchain support for advancing decentralized applications. One of the usually regarded examples of platform tokenization applies to DAI, which can assist in promoting intelligent contract transactions. Platform tokenization extracts profits from the blockchain network used as the justification for improved safety and provision for the transactional venture.

Utility Tokenization
Utility tokenization is the process of building utility tokens in a particular protocol for entering the services in the related protocol. It is crucial to note that utility tokenization does not require creating tokens for immediate investment. Utility tokens offer important platform activity for extending the platform’s economy while the platform extends security to the tokens.

Governance Tokenization
The completion of decentralized protocols has requested for another distinguished option among tokenization types for blockchain. Governance tokenization concentrates on blockchain-based choosing systems as they could improve the decision-making process around decentralized protocols. The advantage of governance tokenization is apparent in the value of on-chain governance for empowering all stakeholders with expertise for collaboration, debating, and choosing on the administration of a system.

Non-fungible Tokens
The final and one of the most popular approaches among the types of tokenization in blockchain suggest to NFTs. Non-fungible tokens produce a digital image of unparalleled assets, and this type of tokenization has productive use cases. For instance, digital artists could get more satisfying possibilities for managing ownership and dealing with their work. The world has lately observed a huge rush in a request for NFTs and NFT-based application evolution. Therefore, it is prudent to focus on the production of NFTs as a famous alternative to tokenization.

Advantages & Disadvantages of Tokenization

Tokenization is one of the access data security happening enhanced in our world today. It describes the innovation in technological advances and the imagination in protecting original data in a proposal to stem data violations and eventually build trust. There are several advantages of tokenization, and especially, there are downsides too. We would examine each of the advantages and disadvantages of tokenizing data.

Tokenization Advantages

  • Affords more real clarity during transactions
  • Makes Transactions secure and more manageable
  • Tokenization adds to improved liquidity for collectibles, microcap stocks, etc
  • Intensifies protected accessibility of delicate data
  • Limits the number of hacking, as there is almost constantly no data to hack
  • Helps organizations keep good security measures and stick to privacy laws

Tokenization Disadvantages

  • Defects due to the tokenized data pool. This may make data change unmanageable with concerns to the payment industry
  • Tokenization and detokenization of data can enhance the transaction time.

Final Words

The world is thinking at an unimaginative speed. Humans developed technology to make our lives more prosperous. These inventions are made evident in areas such as data protection, again that is invaluable in keeping PCI compliance in the payment industry, through payment tokenization. Tokenization is a contrivance that has many aspects, and individual use cases. The domains in which tokenization can be used know no bounds and will forever be open to new use cases based on human imagination.

On a closing note, it is very clear that tokenization has wide-ranging arrangements depending on the circumstances. In the case of conventional payment processing applications, tokenization combined the sections of vault tokenization and vaultless tokenization. You can learn more about tokenization in particular and investigate the difficulties and barriers for its long terms growth.

Just as all major discoveries of all time, the concept of tokenization begins with both upsides and downsides. In this article, the enumerated advantages, and disadvantages may be inexhaustive, and while we imagine tokenization as a new gamechanger, we should be served to include its downsides also. Share your thoughts in the comment section if you want to find the perfect sources of information on tokenization right now.