Thanks to advances in blockchain technologies, raising capital may soon get much easier. When combined with asset tokenization, blockchain technology provides a new way to raise capital that can speed up the dealmaking process, provide private companies with liquidity, and tap into new investor opportunities.
How It All Works
Asset tokenization involves turning an asset into a digital token, which is accomplished by utilizing blockchain technology. This method of asset management allows for safer, easier oversight of both tangible and intangible assets without having to worry about handling any physical items or the voluminous stacks of documents that often exist to describe them.
Blockchain is a digital ledger that allows records, or “blocks,” of encrypted code to be created in chronological order, thereby establishing a distributed database. More specifically, blockchain is “a digitized, decentralized, public ledger of all cryptocurrency transactions.” According to the authors of Blockchain Revolution: How the Technology Behind Bitcoin Is Changing Money, Business, and the World, “blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value.” Blockchain enables asset tokenization by an immutable record of digital assets for secure, "immutable" ownership.
Tokenizing assets can help simplify fundraising, especially for startups, small businesses, or non-traditional, innovative enterprises. Companies can sell tokens as if they are stock interests, but most of the rules and regulations associated with other types of fundraising generally do not apply. As a result, fledgling companies and those with few resources do not have to hire the various experts traditionally required for venture capital, initial public offerings, and other types of fundraising attempts. Given that the burdensome documentation — such as securities filings and other related paperwork — is not required, the whole fundraising process can be conducted faster and cheaper.
Using tokens to represent ownership interests can also help companies raise funds and expand their reach by bringing on additional stakeholders. Companies can decentralize with the sale of their ownership tokens to interested investors. Obviously, this infuses the company with capital, but it also safeguards ownership interests, as there is a digital chain of custody ensuring that proof of ownership is essentially irrefutable. Thus, in addition to facilitating the dispersal of ownership interests, utilizing tokens actually reduces issues of ownership fraud or interference.
Faster, Safer Exchanges
The primary advantages of asset tokenization and blockchain technology are security and convenience. By eliminating the need for meticulous record keeping and relying on timestamped digital data, transactions and exchanges can be initiated and completed instantaneously. Plus, blockchain technology exists in the public realm, so the distributed database does not reside in one location, making it impossible for it to be hacked or compromised.
Less Regulatory Hassle
Many would argue that onerous rules and regulations are a hindrance to the financial industry. Despite the fact that many of the current laws related to investing are designed to prevent some of the abuses that occurred in the past, individuals across the industry are always seeking creative solutions to some of the challenges these rules present.
Blockchain and asset tokenization have proven to be game changers, as they are inexpensive, highly secure, and easily accessible. From fundraising to dispersed ownership, blockchain technology and the increasing desire for asset tokenization are poised to shake up the financial industry by providing faster, safer exchanges and improved regulatory compliance.