A new trend is emerging that capitalizes on our natural resources called tokenization of assets. This combines real-world investments of raw and living material, like gold, oil, livestock, and now Siberian diamonds, with the tracking efficiency of cryptocurrency’s blockchain technology.
From a supplier’s point of view, this provides an easier way to transfer and sell their stock of valuables, but as an investor, it could be a risky experimental endeavor.
Following Venezuela’s launch of the Petro coin in February used to create a currency backed by the country’s oil reserve, Russia is also ready to monetize their share of indigenous resources as they begin tokenizing diamonds.
According to Alexei Chekunkov, chief executive of the Far East Development Fund, Siberia may have trillions of dollars worth of possible tokenized assets at their disposal. Diamond sales would be the first of many trial runs to capitalize the raw material of Eastern Russian.
How does tokenization work?
Tokenization acts as a proof of purchase without actually having to transfer, hold, and secure the physical asset. This would provide a safer outlet for expensive investments, but it also means that supplies must be checked consistently to ensure the investment is really backed by a raw material.
Who is responsible for asset-backed tokens?
Blockchain technology using an online ledger will keep track of transactions, however third-party auditors will still be needed to monitor the real-world asset supply. This makes tokenized assets a risky business as opposed to cryptocurrency coins, like bitcoin, that innately holds a transferable value.
Furthermore, in the case of the Russian government, a token’s value like the diamond will not be federally insured; it will only be supplied and profited by the administration.
There is also the issue of regulation and centralization when it comes to digital tokens backed by government-owned assets that are distributed through international markets like jewelry stores and foreign investors. The tokens must be treated as the asset itself, so it would be classified as a security, needing government approval. Also, unlike the cryptocurrency market, tokenization relies solely on the success of a supplier. If the company that holds your denoted asset goes under, then you lose your share.
Will digital assets work?
This is a new venture for the use of blockchain. Although the technology allows secure and traceable transactions, the real-world application still needs adjustment and clarification. Tokenization of real assets seems to be a separate mechanism when it comes to cryptocurrency. The need for regulation is high while the structure is too centralized. But, can it exist any other way when the token is backed by government-owned natural resources, a regulated and centralized entity?