Financial stewards including the International Monetary Fund and Bank for International Settlements say tokenization is the future. They’re wrong.
Last week the International Monetary Fund (IMF) – a United Nations organization that effectively operates as a global lender of last resort – and the Bank for International Settlements (BIS) – a super-governmental central banking agency – published separate reports about the future of the monetary system. Both reports mentioned crypto and central bank digital currencies (CBDCs) and were generally positive about the potential for tokenization.
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It’s not just the big governmental organizations either. Earlier this year the head of JPMorgan’s digital assets platform said “tokenization is a killer app for traditional finance,” Goldman Sachs said it was examining the “tokenization of real assets” and a recent research report published by financial firm Bernstein asserted that “tokenization could be a $5 trillion opportunity.”
Even CoinDesk’s Chief Content Officer Michael Casey wrote in March how technology has migrated the tokenization of real-world assets from “closed, permissioned projects onto public, permissionless blockchain platforms” and suggested that, yes, this time might be different. (Also, it’s me, hi, I’m the longer-serving colleague mentioned in Casey’s piece who rolled his eyes at the idea that tokenization of real-world assets is viable).
In any event, the IMF and BIS reports provide an interesting insight into how the bureaucrats view crypto because they both coalesce around the idea that tokenization is the killer application for crypto.
The BIS wrote: “Today, the monetary system stands at the cusp of another major leap. Following dematerialisation and digitalisation, the key development is tokenisation – the process of representing claims digitally on a programmable platform.”
Parsing this quickly, dematerialization and digitalization have both happened and have worked wonders for the world economy and commerce. Dematerialization, as in, banks keeping records on ledger entries rather than requiring the movement of physical currency with every transaction and digitization, as in, when that ledger entry practice moved from paper to digital. Tokenization, meanwhile, is the forward-looking idea that is “the process of representing claims digitally on a programmable platform,” to use the BIS’ words.
Okay, one more time, but this time slower.
Tokenization is the process … of representing claims … digitally … on a programmable platform.
Hold on. Is this anything?
Digitization of the monetary system is clearly the digital representation of financial claims. Does that mean financial technology companies, which often operate programmable platforms, is the next leap? Is that tokenization?
Well, no. Tokenization, in the eyes of the IMF and the BIS, is the practice in which claims are traded on programmable platforms. If a blockchain is involved, those claims will likely be represented as tokens. Tokens are not just digital entries in a database. Rather, they integrate the records of the underlying asset normally found in a traditional database with the rules and logic governing the transfer process for that asset.
For a homebuyer,…
https://www.coindesk.com/consensus-magazine/2023/06/26/step-aside-blockchain-technology-imf-and-bis-have-a-new-buzzword-to-peddle/
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***NOT FINANCIAL, LEGAL, OR TAX ADVICE! JUST OPINION! I AM NOT AN EXPERT! I DO NOT GUARANTEE A PARTICULAR OUTCOME I HAVE NO INSIDE KNOWLEDGE! YOU NEED TO DO YOUR OWN RESEARCH AND MAKE YOUR OWN DECISIONS! THIS IS JUST ENTERTAINMENT!
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