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With bitcoin price still on the rise due to the DeFi craze, a new trend has yet emerged – tokenized crypto coin. The tokenized crypto coin is more like a digital representation of the coin you hold. This may leave you wondering, isn’t cryptocurrency already digital? Well, yes, cryptocurrencies are digital, but not in the same digital form as you may think.
However, developers have created a wrap version of crypto. For example, the wrap version of bitcoin evolved from wBTC to renBTC, and now tBTC. As such, investors can now convert BTC into tBTC and use this new token to access the DeFi markets. In this article, we will be elaborating on tokenization, and how they work. We will also talk about the different categories of crypto tokens, the purpose of using them, and how they impact bitcoin prices.
What Is Tokenization?
Within the context of blockchain technology, tokenization is the process of storing, recording, or moving some form of an asset on the blockchain. Tokenization simply means converting an object’s value into a token such that it can be manipulated or transferred on the blockchain system. For example, we can say bitcoin represents the tokenization of electrical use and computing power.
Assets tokenized on the blockchain can either be intangible assets like ownership rights and content licensing or tangible assets like gold and real estate. Anything can be tokenized, as long as it has value. And when tokenized, it can take any form such that it can be programmed with unique characteristics to expand its use.
How Does Crypto Tokenization Work?
The whole essence of tokenization is to help make assets divisible and transferable. So, rather than drafting out legal agreements, or trading with paper representation, tokenization makes the whole process easier. There are several ways to tokenize an asset. However, to tokenize bitcoin on Ethereum or another blockchain, there are two main ways – custodial and non-custodial.
Custodial tokenization involves a centralized custodian, which may be minted by that party. The entity custody of bitcoin must be trusted, as this introduces counterparty risk. On the other hand, non-custodial tokenization involves no trusted entity as an on-chain process does the entire burning and minting process.
What Is The Purpose Of Converting Crypto Into A Token?
Tokenizing crypto provides businesses with several benefits. As such, businesses are encouraged to take advantage of crypto tokenization. Below, we generalize the purpose of converting crypto to token into four main categories:
- Reduces Risk From Data Breaches
Most cybercriminals target businesses that accept credit and debit cards as means of payment. This is due to the wealth of intelligence given through these payment methods. But with tokenization, businesses can protect themselves from the negative financial impact of data theft. Although tokenization cannot protect your business from data breaks, however, even if there is one, it reduces the financial fallout.
- Provability And Transparency
Crypto token is based on the blockchain, which means that users can easily trace their transaction history and provenance. This quality makes crypto tokens achieve a level of reliability that most digital assets cannot match.
- Cheaper And Faster Transaction
There are lots of middlemen and intermediaries when it comes to asset management processes. This can make the cost of the transaction quite high. But with tokenized crypto, investors can bypass these middlemen and intermediaries. Thus, this effectively reduces the cost of transaction and processing time of each exchange, allowing for a more streamlined method of transferring value.
- More Liquidity
Tokenizing crypto makes it readily available for a much larger audience. In other words, tokenization increases market liquidity. This means that as an investor, you get a much broader range of investment opportunities. Because when it comes to investing in crypto, one real problem many investors face is with liquidating the crypto after maturity.
Why Tokenize Crypto Like Bitcoin?
While the history of bitcoin price is quite attractive, its simple design can be quite limiting. So, despite the bitcoin price is quite high, it cannot benefit much from the innovation happening in other segments. For example, you can run smart contracts on bitcoin, but it’s quite limited in score compared to the smart contract on Ethereum or other platforms.
The automated cryptocurrency trading platforms have taken over the market. Everyone is using these intelligent trading systems to make more money from the crypto market.
After reading comments posted by crypto traders on internet forums, it is apparent that many expert crypto traders have also made the switch to start trading with automated cryptocurrency systems.
However, new investors in the crypto sector have complained that they need more information about these systems before investing. This is why the BitQH review was necessary.
Trading with automated cryptosystems is the best way to earn an income from the crypto market, so it is a good thing that many people have discovered these platforms.
For this reason, tokenizing bitcoin on other chains could help increase its utility, hence value and price. Tokenizing bitcoin on Ethereum enables functionality that isn’t natively available on bitcoin. And at the same time, the core security and functionality of bitcoin remain intact. Additional advantages of tokenizing bitcoin include fungibility, privacy, and speed.