NFTs and Finance: A Deep Dive into the New World

Non-fungible tokens (NFTs) are assured to change digital ownership forever. The same technology that allows artists to monetize their creative work like paintings or music, is now being used to streamline financial assets in the banking sector.

Have you ever wanted to buy a rental property? But couldn’t afford a mortgage? Couldn’t move cities? Aren’t even in the USA? Now you can.

Companies like RealT are transforming real estate properties into NFTs. With tokenization, a $600,000 property can now be split into thousands of smaller pieces on the blockchain. For as little as $50, investors from around the globe can now invest in US real estate and collect monthly rent payments on their investment.

This splitting of traditional assets is called fractionalization – and can be enabled through NFTs.

A New Asset Class

Fractionalization has been around for hundreds of years – when you buy a share of TSLA stock, it represents fractional ownership in the company.

But this hasn’t been possible for other investment classes.

By fractionalizing off-chain assets like real estate or commodities, we create much more available exposure by lowering the financial entry barrier. Amongst many benefits, this allows new access to these investment options for developing markets across the world.

The problem is – sending financial data across borders is extremely bureaucratic, exhausting, and time-consuming.

So how can we send financial data across international borders seamlessly?

NFTs over PDFs

Tokenizing financial data is another revolutionary solution enabled with NFTs.

Financial data has long been difficult to transmit across international borders due to confidentiality, compliance, and privacy reasons. From approvals, to processing times, to system integration – extensive human intervention is required in order to move a PDF file from one institution to another, often taking weeks or months to process.

Leveraging the concept of tokenization, any type of information including documents, images, and 3D models, can get a cryptographically unique identity that separates it from any other batch of data – even if otherwise identical. Those tokens are then transferrable on the blockchain securely and quickly (within seconds) using a smart contract.

Smart contracts are predetermined agreements that define how assets on the blockchain will interact with one another. They are created to show ownership of responsibilities for the promiser, and ownership of benefits for the promisee.

For example, a smart contract designed to transfer a financial document from a US institution to a Canadian institution would include details like sender and receiver addresses, time and date of the transaction, the nature of contents in the token, etc.

By eliminating most human intermediaries from this process flow, we preserve higher integrity deliverables, mitigate counterparty risk, and reduce processing times significantly.

The benefits tokenization could present for global banking and payment processing are immense.

The Start of a New Dilemma

While we have the foundational technology and the basic principles for these NFT solutions, there’s still a lot of work to be done.

Bringing these process flows to reality involves disrupting the current technology systems used by traditional banks. Integrating such solutions into our present-day infrastructure will require massive amounts of human capital, greater education for less innovative institutions, as well as modernising current government regulations.

Without proper due diligence as it pertains to checking authenticity at every step in the process flow, rolling these products out prematurely could cause an organisational armageddon.

Regardless, the benefits of digital tokenization in the banking sector will far outweigh the risks. And at some point in the future, a major rebirth in how we manage the banking sector will occur.

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