What’s a Token? - Differences, Types & Uses in Real Estate
Tokens: Every Different Type
Bitcoin was the first token that gained massive attention, but since its first appearance 13 years ago (yes, it is that old), digital assets’ usage has been growing steadily across all industries.
Let’s see all the multiple types of tokens you can find out there:
a) Utility Tokens
Utility tokens are probably the closest to the fairs and festivals tokens. They are designed as digital units representing a specific value. Think of them as vouchers or coupons you can trade for a product or service that gives you a token issuer.
b) Security Tokens
This kind of tokens derive value from an external asset and are traded under financial regulation as security. They are designed to securitize tokenization of different types of assets from the “real world”, like stocks, bonds or real estate. (More on this later.)
Furthermore, security tokens are divided in two main categories:
Equity Tokens: They are like traditional stocks in terms of operation and form, but the ownership transference happens digitally and is backed by the blockchain system.
Asset-Backed Tokens: These tokens are backed by real world things or products. Commodities like oil, gold, silver, art, and real estate security tokens are some of the best examples for asset-backed tokens.
c) Payment Tokens
The name is plain explanatory here. Payment tokens are used for buying or selling products and services on different digital platforms. The good thing about payment tokens is that you can skip any middleman or third party, unlike traditional transactions where a bank or financial institution works as a nexus.
The vast majority of cryptocurrencies tend to fall under this category. Even other types of token can be known as payment tokens mainly because of their use. But it is always good to remember that a security token can be a payment token, but this won’t necessarily work both ways.
d) Non-Fungible Tokens (NFT)
NFT’s, or non-fungible tokens, are digital certificates of ownership to unique and non-replaceable pieces. All NFT’s are one-of-a-kind assets, which gives them (and the token-holder) a certain feeling of exclusivity.
NFT’s are usually used to represent collectible articles, pieces of art, pictures, videos, or any kind of digital content you can imagine. Probably the most famous NFT to this date was the first tweet ever published, which was sold originally at $2.9 millions.
e) Decentralized Finance Tokens or DeFi Tokens
One of the most recent types of tokens are DeFi. Decentralized finance tokens aim to replicate the functions of the traditional financial system (loans, savings, insurance or exchanges.) These tokens can also be traded or held like any other cryptocurrency. They usually depend on a financial application built on the blockchain.
f) Stablecoins – Fiat And Other Types
These tokens were developed to match different commodities in the real world, bridging the gap between the worlds of cryptocurrencies and fiat money. This model dramatically reduces volatility and ensures stability, as the name indicates. The best example to illustrate these types of tokens is when stablecoins are backed by fiat money. For example, USDT is a token with a 1:1 ratio with US dollars.
Definition of Token
Simply put, a token is a digital asset with certain value backed by a blockchain system. There are multiple kinds of tokens with many different uses or purposes, like buying products, real estate investing, or even stock certificates.
Their common denominator, and what sets them apart from more traditional assets, is that all tokens are securely stored on the blockchain, a decentralized digital network that records encrypted and unchangeable data.
Now, even though people often refer to tokens as cryptocurrencies or cryptocoins, they can be anything from assets to access rights and stablecoins. Keep reading below to see what we mean about that.
How Do Tokens Actually Work in Real Estate?
Investing in real estate is one of the “go-to” options for investors due to its long-term benefits, stability, and attractive returns. However, it also implies a large amount of capital or contracting a debt with a financial institution to get into.
Fortunately, real estate tokenization gets rid of most of all these issues linked to traditional real estate investing. Let's see how that goes.
All properties have written, legal documents that represent its ownership. Crypto fractionalization breaks with established barriers, since by tokenizing real estate you are dividing the asset (in this case, a property) into digital shares (or tokens) using blockchain technology, which ultimately guarantees owners the same exact rights as a traditional document.
Additionally, since tokens can be traded along the process, fractional real estate grants more accessibility and ease of property ownership. With fractional shares, small investors can actively enter and participate in the real estate sector and start building their own asset portfolio.
So if you’re asking why tokenizing real estate is the future of the industry, you need to review all the benefits of these real estate backed tokens.
Problems solved by real estate tokenization
As we mentioned before, real estate platforms of tokenized crowdfunding simplify many issues usually linked to traditional real estate investing:
Liquidity: Tokenization gets rid of the main issue in the real estate market, liquidity of the asset. You can buy or sell any fraction of a property in just a couple of minutes.
Proof of Ownership: In real estate tokenization, every token represents direct and immediate ownership of an asset.
Property availability: The burden of finding real estate in the right place, at the right time, with a certain set of conditions is removed by a team of experts finding large scale projects for you. You also can invest in projects all around the world in the comfort of your own home.
Increased Transparency: Since all real estate tokens are traceable, transparency is one of the greatest benefits this kind of assets offer.
Room to Small Investors: The traditional system doesn’t have much room for small investors. But with tokenization, assets are divided into smaller shares, which reduces the barrier of entry to smaller investors and allows them to be part of high-quality deals.
Extra Safe, Faster & Cheaper: As they are powered by blockchain technology and there are no third parties involved, all transactions are immediate, secure, and low-cost.
Ready to Start Investing in Real Estate Tokens?
Tokenization of real estate is, basically, fragmenting the entire value of a property in equal shares. When you combine it with crowdfunding, you offer opportunities to smaller investors, while also promoting a constant cash flow in a growing market.
It is a smart investment that takes advantage of new technologies. The first thing you need to do is choose a tokenized real estate platform, look for the project that suits you the best and start investing. Using our platform you keep track of every project you’re into and will receive constant updates that will let you know how the development is advancing. Real estate investments are only a few clicks away.
Often used in the crypto ever-growing ecosystem, token is a word that’s becoming more popular by the day. By this point, it is more than likely that you’ve heard about Bitcoin, Ethereum, NFTs, or security tokens. All of which are just some of the many examples of tokens you can find today within a larger universe based on the blockchain technology.
Crypto tokens are now more of a high-quality standard than an exception across multiple markets and industries, like real estate. But, what’s a token in reality? Are tokens the same as Bitcoins? Why is real estate using tokens these days?
Luckily, we have answers for all those questions, and more. Keep reading and find out all about the extensive world of tokens — Types, uses, and, specifically, what is tokenization of real estate and how tokenized real estate is changing the way we can invest.