Advantages and disadvantages of business tokenization

Funding your healthcare business can be difficult if it’s not public, because the traditional investing system simply isn’t applicable. Even if you’re a startup, getting to the right investors includes having a lot of connections, networking, etc. Moreover, it could consume a lot of time (and money).

The good news is that funding is now easier than ever, thanks to cryptocurrencies and their underlying technologies. That’s why many businesses opt for tokenization. Apart from giving them new funding opportunities, tokenization has several great advantages, but also a couple of drawbacks you should be aware of.

Before discussing the pros and cons of tokenizing your business, let’s quickly discuss the concept of tokenization.

What is tokenization?

A business that decides to go through the process of tokenization has to undergo a set of procedures that include putting all ownership rights on a blockchain. Once this process is completed, your business gets a token of its own — a unique cryptocurrency that is part of your business and makes certain processes easier. For example, you could establish an ecosystem based on your token and make the sales process convenient for your customers.

In plain English, you get your own crypto, which can help you attract more investors, because buying digital tokens is a much easier and more straightforward process compared to traditional investing.

The truth is that there are many investors who also happen to be crypto owners. People around the world purchase cryptocurrencies such as bitcoin with the goal of making a profit. They are on the lookout for new investment opportunities, and yours might be just what they are looking for. But they won’t be able to invest if you don’t give them a chance with your token.

The majority of tokens are created on the Ethereum platform. They are referred to as ERC-20 tokens, and that’s why Ethereum is the main go-to place for many businesses interested in tokenization. Moreover, there are many professional investors who buy Ethereum and manage investments in ERC-20 tokens, which means they could be interested in buying your token. 

Benefits of tokenization

What will your business get out of tokenization? Here are the main advantages.

Attracting additional investments

The first is the most obvious one — you tap into a whole new landscape of investments. You can reach many people who are interested in investing in your business yet can’t do so via traditional channels. Public and private coin offerings are popular nowadays, and your business could start such an offering to raise funds by selling your token to interested parties.

A big step into the digital future

Like it or not, the pace of business digitalization has significantly increased in the last couple of years, and it’s only going to get faster. By tokenizing your business, you’re also opening it up to other associated technologies, such as blockchain, that can help you with business automation. This can also help with reducing various operating costs, keeping your business competitive.

Tokenization provides programmability

Programmability is defined as the capability of hardware or software to change. This could also apply to the entire IT infrastructure of a business. If you decide to go through with tokenization, the overall programmability of your venture would increase. In other words, it would be easier to implement new features and technologies in the future, especially if they are related to the crypto sphere. 

Disadvantages of tokenization

Unfortunately, tokenization might not be the best idea for every business. Let’s see why.

Lack of uniform standards and legal infrastructure

The majority of countries around the globe don’t have any legal frameworks for handling cryptocurrencies, let alone business tokenization and all its associated processes. That’s why you need to be extremely careful before tokenizing to avoid possible legal pitfalls. Moreover, tokenization has paved the way for all sorts of scams, because there are no uniform standards. 

Global legal recognition and digital identity

With tokenization, there’s an issue of digital identity management. At the moment, no clear mechanisms exist to help with various market manipulation techniques, such as wash trading, which could artificially affect the price of the token. To overcome these issues, we need a unified approach to digital identity, especially in a time when trading is going global. We can use strong AML/KYC (anti-money-laundering/know your customer) checks and regulatory-compliant platforms to avoid those risks. However, they will still be present until global legal recognition of tokens takes place. 

Technical difficulties for tokenization

Tokenization isn’t as easy as it sounds. Many companies simply don’t have a firm technological basis for tokenizing their assets, let alone deal with token distribution, control, and overall acceptance of their tokens.

Conclusion

Business tokenization offers many benefits, and the most notable one is creating new investment opportunities for your projects. As you can see, though, however useful it is, tokenization has a set of drawbacks that are mainly related to the lack of recognition and legal infrastructure around the globe. 

The good news is that some of the most brilliant legal professionals and computer scientists are working hard to connect the dots and pave the way for easier and more secure business tokenization processes. It’s going slowly, but we hope that it will be worth the wait. If tokenization becomes regulated and accepted worldwide, the chances are that many businesses will do it.