Blockchain technology is getting a lot of hype as of late. There are many individuals out there that believe it will be revolutionary and change the world as we know it, but there are some out there who seem to believe the notion of tokenizing assets on the blockchain is very risky.
Kubli Thinks Blockchain Tokenization Isn’t a Great Idea
One of those people is Ralph Kubli, a board member with the blockchain developers Casper Association. Despite labeling it the “single most important technological innovation in finance,” he said in the same discussion that the notion of tokenizing every asset around would be hugely troublesome.
He said one of the big problems with tokenizing assets on the blockchain is that a heavy legal framework would need to be in place before anything like this could happen. In an interview, he said:
You would have to have a legal concept that links the representation of the assets on chain to the real physical existence of the asset.
For the most part, blockchain has largely been associated with cryptocurrencies. These tokens are backed by the technology of the blockchain, which records all transactions in real-time and ensures everything is clear, transparent, and easy to understand for all the players at hand.
However, blockchain technology has since expanded to include concepts like non-fungible tokens (NFTs), which are forms of pixelated art. Thus, the notion of tokenizing assets other than digital currencies has come to light through the arena of NFTs and what not.
Still, Kubli says that should this idea expand, there would be serious problems with ownership, especially if such a token were to be divided up amongst multiple individuals. He commented:
One risk is to have unclear definitions of the cash flow obligations of the parties involved in these financial contracts. We do not want to repeat the same mistakes that happened in the 2008 financial crisis, where there were ill-defined cash flow obligations.
He also mentioned that the tokenization of operations or business maneuvers might be easier than tokenizing assets or anything physical. He said:
The reason why a lot of the private equity firms are really trying to work on the tokenization of their functions is that it is just much more efficient.
Banks Could Learn from the Technology
He also hinted that events such as this year’s bank failures could potentially come to an end if banks and similar institutions were willing to look more into the tokenization process and blockchain. These elements could ultimately aid in both efficiency and transparency. He mentioned:
If you combine a properly defined financial contract with the unique capabilities of blockchain you get an assurance layer that will create the kind of reliability that you need in order to fully securitize financial instruments. That is really the holy grail.
