We live in a digital age in which most assets have been digitized to bring innovation to the world. Because of its transparency, auditability, immutability, and distributed nature, the blockchain enables the digitization of a physical asset.
In this article, we will discover the top-performing digital asset blockchain platform. But first, let’s define a digital asset and how it works.
A digital asset is a digitized right of ownership over an asset. It can also be defined as an individual’s digitally owned content. However, we define a digital asset as a store of value in this context.
Digital assets are classified as follows:
The first step in creating digital assets on a blockchain is to select the platform and setting for smart contracts. The digitization of assets on the blockchain is made possible by various blockchain platforms, including TrustToken, Alpha Point, and Fraction/al.
The value of a newly created digital asset is set to match that of the underlying physical asset. For instance, the price of digital gold on the blockchain would be fixed at the cost of gold in a particular market if you wanted to digitize the gold asset.
The immutable smart contracts set the digital asset’s value that will be released onto the blockchain. The company’s number of physical assets should match the number of tokens it issues.
To verify that the company has the physical asset holdings necessary to support the launched digital assets/tokens, regular audits should be conducted.
Digital assets that are backed by physical goods are also known as regulatory asset-backed tokens, which restrict access to digital ownership of assets to accredited investors only.
To be eligible, every investor who wants to own fractions of assets must undergo KYC/AML checks. Once the KYC/AML validation is completed successfully, investors can be added to the Digital Asset Blockchain Platform and own a certain number of holdings.
Because asset-backed tokens are typically tradeable and redeemable, they are more liquid than physical assets. Investors can redeem or sell digital assets at any time.
Tokens are initially moved to the escrow account when investors request to transfer digital assets to a company or another investor. The transfer request is approved, and funds are successfully transferred once the specific requirements are satisfied and the investor’s KYC/AML status is confirmed.
The digitization of physical assets on the blockchain has occurred for several reasons, including the absence of intermediaries, reduced complexity, the ability to transfer or exchange illiquid goods, fractional ownership, and reduced transactional frictions.
With the speed, security, and ease of exchange or transfer provided by the blockchain network, investors from any part of the world can invest in digital assets without leaving their home country.
Trades can be completed without the involvement of third-party brokers or centralized authority, which can often slow down the process and increase its cost and inefficiency.
By enabling fractional ownership and making the transfer from one entity to another possible without having to go through the legal process, digital assets can increase the liquidity of physical assets.
Transaction costs for digitized assets are lower due to eliminating intermediaries/middlemen, lowering fees in blockchain transactions, and reducing counterparty risk. Intermediaries in the financial system charge fees associated with transactions. Compliance can be added to the smart contracts that govern how and when the token can be legally traded on the blockchain.
One of the intriguing advantages of digitalized assets is asset interoperability, but this benefit requires governance, regulation, and technology advancements. Different countries may have different regulatory climates. The ability of standardized interfaces to interact with various types of value is stated in Ethereum standards like ERC-721 and ERC-20.
Assume you purchased tokens backed by gold assets, with the value of each token equal to the price of 2 grams of gold. It is possible to redeem purchased tokens against physical gold or fiat currency. If you want to redeem tokens for fiat, once you sell the tokens, the amount equivalent to the tokens in your wallet can be transferred to your linked wallet.
Similarly, physical gold could be delivered to your desired location for a fee. As a result, investors can easily exchange their digital tokens for real-world assets. Contact SmartOSC if you need help with blockchain development services for your firm.
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