The combination of tokenization and blockchain technology

Much like when casinos issue chips as their own form of tokens, blockchains can also allow tokens to be issued and stored within the network. As the blockchain is a publicly distributed ledger, whenever a token is issued on the network, all blockchain users can see the token and monitor its movements – but they won’t see the exact asset that underlies.

The most popular example of a token being used on the blockchain is Bitcoin – as a tokenization of currency.

Each Bitcoin is a token that can be tracked throughout the network. So, if Person A sent Person B one Bitcoin, all other users on that network could see the transaction happen in real-time.

What would happen if a Token was copied?

‘Double-spending’ refers to the risk that any digital asset (digital currency, an image, a file) could be copied an infinite number of times. Theoretically, this would allow cyberattacks to occur, resulting in a digital currency being spent twice, as the ‘copy’ of the original token could be used to pay for goods or services whilst the original was retained.

However, blockchain technology provides a powerful safeguard against the threat of double-spending. Once transactions within the ledger are logged and confirmed, they are made public to the entire network. These transactions are also immutable, meaning that they cannot be altered or removed. Thus, if someone were to attempt to duplicate a token (e.g. a digital currency) and send the tokens to an external wallet, one transaction would be rendered invalid through the proof-of-work algorithm referenced previously.

Something worth noting is that many cryptocurrency projects offer a mathematically finite number of tokens, which compared to normal stock shares are not possible to be locked or very difficult to. This feature attracts smart investors that understand scarcity, a concept that in the financial sector has become even more popular with crypto project Bitcoin.