Blockchain was the new business buzzword, we’ve now evolved to tokenization. Struggling to keep up? In this article, we’re going to look at tokenization, why it works, and how it’s affecting the supply chain industry.
What Is Tokenization?
Tokenization is the act of representing something of value with a token, on a blockchain network. This can be anything from money to real estate, the token acts as an asset representing that item, and is operated on a particular blockchain network through smart contracts. Tokenization has infiltrated several unsuspecting industries in recent years and is giving all the indications to prove it is here to stay.
Tokenization in the Supply Chain Industry
In order to incorporate tokenization, the supply chain management system will need to be operated on the same blockchain network. The movement and storage of raw goods to end products will be traced by the use of a token, essentially creating digital representations of the goods that can be traced by the supply chain manager. Two problems the current centralized systems are facing are isolated data storage and a lack of trust between the multiple entities. With a blockchain network, all data is stored in real time and is available for any involved parties to see. The issue of trust is solved as blocks recording the information in the blockchain cannot be tampered with.
What are Smart Contracts?
A further layer of this process is the implementation of smart contracts. Smart contracts are digital contracts that facilitate a transaction without the need of a third party. Between two parties the criterion is agreed, and once they are met the contract will engage digitally. By incorporating smart contracts and tokens into the supply chain network, this allows for processes to automatically be initiated as the previous step has been completed, and allows all processes to be tracked by the operating manager in real time.
Example of Supply Chain Tokenization
Volum, a company at the forefront of this movement, is currently implementing these processes into their supply chain network. The company utilizes a holding company structure, with a portfolio of five companies spanning across several industries. These industries range from events to renewable energy to wine and spirits. All companies operate off the Volum blockchain network, and each utilizes the token VLM. VLM is built upon the Ethereum blockchain and can facilitate a number of transactions that pan across the various industries requirements; paying a utility bill, leasing equipment, etc. This shared infrastructure allows for vertical and horizontal integration of the portfolio companies, as well as allowing quick attainment of economies of scale.
In conclusion, the integration of blockchain tokenization is slowly but surely infiltrating into industries that have been around for decades, if not centuries. This is indeed a leap forward in terms of technology, but also in establishing trust and easier and more transparent supply chain management. We are already seeing tokenization revolutionize the supply chain industry, and it is only a matter of time before it becomes the norm.