In bitcoin we trust?
Part 4: What is tokenisation?
Tokens before tokenisation
We saw in Part 3 that blockchain technology has applications beyond money. Indeed, our discussion of smart contracts and dApps showed that, as a radically decentralised form of governance blockchain can be applied to any relationship that involves contracts and/or the certification, authentication, and overseeing of information. But importantly smart contracts understood as the enforcement mechanism of the rules of trade in Web3 (our How? question from Part 3) and dApps, understood as the answer to our Where? question, are not the only applications of this technology. Blockchain may also be leveraged to act as a platform for what is called “tokenisation,” and it is this phenomenon that will be our focus in this post.
Of course, neither tokens nor tokenisation are new, and did not originate from blockchain technology. Tokens have long been used to represent things that are precious or of value, as the well-known phrase “accept this gift as a token of my love” demonstrates. Here a gift serves as a means of making tangible one’s otherwise intangible, although no less keenly-felt, emotions for another. Beyond the representation of intangible things such as love, friendship, or affection, tokens have been used to represent tangible assets, most famously perhaps in the case of casino chips. In casinos one does not gamble directly with money, which of course is itself a token of value, but with representations of money in the form of chips and gaming plaques which one pays money to acquire.
There are several reasons for the use of casino chips instead of money in casinos; security and the facilitation of gameplay with easily recognisable token shapes, sizes, and patterns, being the most obvious among them. But the important thing is that, despite representing money on a one-to-one basis (each £50 note given to the cashier or debited from your card gives you a casino chip worth £50), casino chips are not money, and generally hold no value outside of the casino (including in other casinos). Casino chips are therefore secure and convenient tokens of money, not money itself:
Fungible and non-fungible assets
However, tokenisation may also have uses beyond the case of money, and to see how we need to make the two important distinctions.