Tokenization Explained: How Blockchain Is Reshaping Asset Ownership

Ownership has always been tied to documents, intermediaries, and often, a long trail of paperwork. Whether buying property, investing in a business, or collecting art, the process has typically involved high costs, limited access, and slow transactions.

A U.S. News & World Report article shows that closing costs for buyers can range between 2% to 6% of the property’s value. For sellers, the rate begins at 5% to 6%. This indicates the high cost of paperwork involved in transferring the ownership of assets.

Blockchain technology is starting to change that. Through a process known as tokenization, it’s now possible to represent ownership of assets as tradable tokens on a blockchain. This shift is making ownership more accessible, more transparent, and, in many cases, more efficient.

In this article, we’ll discuss how tokenization works and its impact on reshaping how people invest, own, and exchange value.

Understanding Tokenization

Tokenization is the process of converting ownership rights of an asset into a digital token that exists on a blockchain. These tokens represent either partial or full ownership of a tangible or intangible asset.

As stated by Polymesh, this could include physical assets such as real estate and artwork, as well as financial instruments like bonds or equities. Even digital items, like collectibles or in-game assets, can be turned into tokens.

Essentially, tokenization creates a digital version of something valuable, making it easier to trade, transfer, or store compared to traditional methods. This concept isn’t new, but blockchain technology brings transparency, security, and automation that traditional systems lack.

Unlike paper certificates or spreadsheets maintained by intermediaries, tokenized records are stored on a decentralized ledger. This is often accessible and verifiable in real time, and it is hard to alter without leaving a trail.

Can tokenization be reversed once an asset is converted into digital tokens?

Yes, tokenization can be reversed, but the process depends on how the tokens were originally structured and the type of asset involved. If tokens represent a physical asset like real estate, a formal process must be followed to “burn” the tokens and reassign ownership through paperwork.

The Technology Behind It

The foundation of tokenization lies in smart contracts. These are programs that run automatically, enforcing rules without human involvement.

As Britannica notes, these are similar to any other contract, but are created using coding. They use blockchain’s advantages, such as its transparency, security, and efficiency.

It is due to such benefits that the global smart contracts market size is estimated to grow at a CAGR of 82.21% from 2025 to 2034. According to Precedence Research, the market can reach a whopping $815.86 billion by the end of the forecast period.

These contracts live on blockchains and are responsible for the issuance, distribution, and control of tokens. Ethereum, Solana, and other blockchain platforms support this kind of automation. They enable developers to create systems that can automatically handle ownership and rights.

Since smart contracts run on a shared digital ledger, they reduce the need for intermediaries, making processes quicker and more open. Whether someone is buying a fraction of a building or trading shares, smart contracts ensure that the terms are executed correctly.

What role does token standardization play in tokenization?

Token standardization ensures compatibility and facilitates seamless integration across various blockchain platforms and applications. Rules for token behavior are set by standards like Ethereum’s ERC-20 and ERC-721. Without standardization, every project would require custom infrastructure, resulting in inefficiencies and limited interoperability.

Real-World Applications of Tokenization

Tokenization is already influencing several sectors. In real estate, companies are creating platforms where investors can buy and sell fractions of buildings. This provides more people with an opportunity to enter a market that has traditionally had high barriers to entry.

A residential apartment in New York or a commercial office in London can be split into hundreds or thousands of digital shares. Investors from various parts of the world can participate without needing to be physically present or undergo lengthy legal processes.

In the art world, tokenization allows collectors to own portions of expensive artworks without purchasing the entire piece. This not only broadens access but also creates liquidity in a market where buying and selling often take time.

When a Picasso painting is tokenized, its value can be divided among many investors, each holding a portion of the digital rights. Should the artwork be sold, the proceeds are distributed automatically.

McKinsey & Company states that tokenization of assets had some false starts. However, the concept is now moving from pilot to at-scale development. The company also estimates the tokenized market capitalization to reach $2 trillion by 2030.

Can tokenization support short-term ownership or rental models?

Yes, tokenization can be designed to support temporary ownership or rental rights. For example, a token can be programmed to grant access or usage rights for a defined period. After this time frame, the smart contract can revert the rental rights back to the issuer.

Tokenization Benefits and Challenges

Tokenization offers several advantages, especially in terms of speed, access, and transparency. A Forbes article states that it also offers increased cost savings, an enhanced settlement process, and improved KYC and client eligibility process.

Liquidity increases as fractional ownership allows more people to participate. Blockchain technology also reduces the risk of tampering or fraud, as every transaction is recorded and visible.

However, tokenization also brings complications; technical standards are still developing, and different blockchain platforms don’t always work well together. Investors may find it challenging to transfer tokens across platforms.

It also presents difficulties with managing digital wallets or private keys, which not everyone has the digital skills to handle.

Market infrastructure must also mature. While token exchanges exist, they are not yet as robust or regulated as traditional stock markets. Liquidity is improving, but not all tokenized assets have a large enough user base to support regular trading.

With blockchain technology, tokenization is transforming the way we perceive ownership and investment. It streamlines access, lowers costs, and enhances transparency.

While there are still legal and technical challenges to be addressed, the shift is already underway across various sectors. Whether it’s a building, a painting, or a business, tokenization opens the door to new forms of participation and exchange.