Last week, the International Monetary Fund (IMF) and the Bank for International Settlements (BIS) published reports discussing the future of the monetary system, citing the potential impact of crypto and central bank digital currencies (CBDCs) on tokenization. With major financial institutions such as JPMorgan and Goldman Sachs expressing interest in tokenization, it seems to be gaining traction as a significant financial concept.
So, what differentiates tokenization from digitization and dematerialization? While digitization and dematerialization have transformed financial transactions, tokenization implies the representation of claims digitally on a programmable platform. This could refer to anything from financial technology companies to blockchain platforms.
Tokenization involves integrating records of underneath assets typically found in a traditional database with the rules and logic governing their transfer process. In the context of a homebuyer, for example, their deed might be represented as a token on a blockchain like Bitcoin or Ethereum. However, tokenized real estate remains a contentious area, particularly when legal documents or processes relating to ownership can potentially invalidate the use case for a token representing real estate.
The IMF and BIS reports seem to focus more on the tokenization of CBDCs than commodities or real estate. The reports envision a single, unified ledger as the central force to maintain the stability of settlement and “singleness of money” in the context of tokenized CBDCs. However, it is worth mentioning that many countries are still researching CBDCs, and only a handful have implemented them.
While the IMF and BIS explore tokenization in the context of CBDCs, it is essential to recognize that using cryptocurrencies to create a unified, centralized ledger may not be necessary. While the ledger’s concept captures the attention of central banks and regulators, it risks diluting the very essence of cryptocurrencies like Bitcoin, which are valued not because they are digital but because they lack central control.
In conclusion, tokenization may not be a significant improvement over current financial institutions’ practices and may even serve as a distraction from the real innovation taking place in the world of cryptocurrencies. The true potential of tokenization lies in the decentralization and the elimination of reliance on central authorities, rather than an attempt to inject central control back into the equation. Tokenization may not yet be fulfiling its true potential, but further developments and conversations about CBDCs are essential to keep an eye on, as they could impact the global monetary landscape.
Source: Coindesk
