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Tokenization is the act of digitizing something valuable on a blockchain using smart contracts. This can range from real-world assets like gold or real estate, to even data. As previously stated, anything that has value can be tokenized on the blockchain. Smart contracts allow these tokenized assets to be programmed for different use cases and provide adaptability to various types of value.
Tokenizing introduces these valuable assets to the benefits of blockchain, such as security, transparency, speed, and accountability. With blockchain being open-source, these assets can be easily accessed, verified, and transacted, which allows them the ability to easily participate in the evolving economy of Web3.
There are two forms of value that are represented when using tokenization, which are tangible and intangible. Tangible assets in tokenization are real-world assets with physical form, such art, precious metals, collectibles, etc. Intangible forms of value represent data, licensing, intellectual property, and other item that can not be represented physically.
Fungible means these assets are divisible into smaller units of value. Let's say you wanted to tokenize 1lb gold, you could make the token divisible by 16, which can represent 1oz of that gold bar. This will allow ownership of one item by many, or a single user to transact smaller amounts of one asset.
Non-Fungible means the asset can not be broken down into smaller units of value. This can be used to tokenize assets that are not meant to be shared or divisible. These tokens are usually used to represent a piece of art or any other single asset.