Looking at the ICO space now,
it’s clear that there’s a lot of problems but potentially a lot of promise. A comparison that is often used is that the current state of the ICO market and cryptocurrencies as a whole is akin to internet companies in the dotcom boom and crash in 2000 — a lot of noise, many companies will fail, but there could be major firms that survive and become big.
If ICOs do survive, it could pose a challenge to traditional funding methods such as initial public offerings, venture capital or corporate debt.“Philosophically, the value of an asset should be greater when there is more utility, which is a strong incentive for issuers to tokenize real-world assets.”
But beyond that, the whole idea of “tokenizing” a product via an ICO could also lend itself to traditional assets such as stocks, bonds or even currencies like the U.S. dollar. Robert Leshner is the CEO of Compound, a start-up that lets users earn money on their cryptocurrencies. He believes that real-world assets will eventually be tokenized which could boost security, the ability to move them globally, and create new business models.
“Real world assets, from government currencies like the U.S. dollar, to corporate bonds, to equity, can all be upgraded with these properties. Philosophically, the value of an asset should be greater when there is more utility, which is a strong incentive for issuers to tokenize real-world assets,” Leshner told CNBC.
He proposes two ways to do this. The first involves freezing an asset in the traditional financial system and creating an equal amount of tokens on a blockchain, with the ability to unwind the process if needed. A central bank, financial institution, or custodian is trusted with the administration, similar to how exchange-traded funds are created and destroyed. The second option is creating tokens that mimic the value of an asset.
“Tokenized assets will behave like safer, speedier, more useful versions of themselves, which investors will prefer. Once we head in that direction, there will be no going back,” Leshner said. There are however a number of stumbling blocks to such a movement, the main one being regulation. Authorities across the world have barely begun looking at cryptocurrencies and ICOs, let alone the tokenization of traditional assets. But advocates believe it is just a matter of time, likening the development of blockchain and tokenization to the way content was changed by the internet. “Tokenization is to ownership as digitization was to content,” Muirhead told CNBC.
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Arjun Kharpal is a technology correspondent for CNBC in London. He moved into the role after being a news assistant at the company for two years, and a reporter for a year following that. Arjun's heads up CNBC's "Tech Transformers" special report, interviewing guests or offering analysis on "Squawk Box Europe" and "Street Signs", as well as writing a plethora of stories online. He writes extensively on the technology industry covering the latest trends and topics all the way from the most innovative start-ups up to the biggest companies in the world including Apple and Google.
Arjun talks to the most important industry players including company chief executives, investors, and entrepreneurs. Arjun has previously written for The Times, The Telegraph, The Guardian and The Mirror in London. He holds a BA in English Literature from the University of York and an MA in Newspaper Journalism from City University, London.