Tokenization vs NFTs: Key Differences & Effective Use

Written by Daisie Team

Published on 10 July 2023 6 min read

Ever wondered about the buzz behind NFTs and tokenization? Let's unravel this digital riddle together. As we step into the realm of blockchain technology, two terms—NFTs and tokenization—often come up, and for good reason. They're changing how we perceive value and ownership in the digital world. This blog aims to simplify these complex concepts and help you understand their key differences and effective uses.

1. Unravel Tokenization

Before we delve into the world of NFTs, let's first unravel the concept of tokenization. In simple terms, tokenization is the process of converting rights to a real-world asset into a digital token on a blockchain. This process has been causing quite a stir, especially in the financial sector. Let's take a closer look.

What is Tokenization?

Tokenization is the process of converting an asset—or rights to an asset—into a digital token on a blockchain. Imagine you own a piece of land in Texas. Instead of holding a paper deed, you could hold a digital token representing that land. It's like a digital deed, securely stored on a blockchain. The cool thing is, because it's digital, you can easily break it into smaller tokens—say, if you want to sell parts of your land to multiple people. That's tokenization for you.

Benefits of Tokenization

So why bother with tokenization? Here are a few reasons:

Security: Since tokens are stored on a blockchain, they're pretty hard—if not impossible—to fake or steal.
Liquidity: Tokenizing an asset can make it more liquid—that means easier to buy, sell, or trade.
Access: Tokenization can make assets more accessible. By breaking an asset into smaller tokens, more people can afford to buy a piece.

Tokenization Use Cases

Tokenization isn't just for land. Other assets can be tokenized too, from stocks and bonds, to artwork, to even future earnings. For instance, NBA player Spencer Dinwiddie tokenized his contract—essentially allowing people to buy a piece of his future earnings. And companies like Polymath and Harbor are helping businesses tokenize their equity, opening up new ways for companies to raise capital. As you can see, the potential applications of tokenization are wide and varied.

2. Navigate NFTs

Now that we've delved into tokenization, let's navigate the world of NFTs. Short for Non-Fungible Tokens, NFTs have recently gained significant attention in the world of art, gaming, and even real estate. But what are they, and why are they such a big deal?

Understanding NFTs

NFTs, or Non-Fungible Tokens, are unique digital assets that represent real-world objects like art, music, in-game items and videos. They are bought and sold online, often with cryptocurrency, and they are generally encoded with the same underlying software as many cryptos. The big difference between NFTs and cryptocurrencies? Each NFT is unique and can't be exchanged on a like-for-like basis, hence they are non-fungible.

Advantages of NFTs

Why are NFTs capturing headlines and turning heads? Here are a few reasons:

Ownership: NFTs provide indisputable proof of ownership. They're like autographed baseball cards, only digital.
Rareness: NFTs can't be replicated, which makes them rare and potentially valuable.
Earn royalties: Unlike physical art, artists can earn royalties every time their art NFT is sold to someone else. That's a game-changer!

NFT Use Cases

NFTs are making waves in various industries. In art, artists like Beeple have sold artwork as NFTs for millions. In music, bands like Kings of Leon released their album as an NFT. In gaming, games like CryptoKitties and Decentraland are built around NFTs. Even real estate is getting in on the action, with virtual land being sold as NFTs. The possibilities seem endless for NFTs and tokenization in the digital world.

3. Tokenization vs NFTs

So, we've explored the worlds of tokenization and NFTs individually, but how do they stack up when put side by side? Let's dive right in and find out.

Comparing Tokenization and NFTs

Tokenization and NFTs share a similar foundation—both are based on blockchain technology, which provides transparency, security, and immutability. Both can also represent real-world assets digitally. But that's where the similarities end.

Contrasting Tokenization and NFTs

Now, let's look at how tokenization and NFTs differ:

Uniqueness: While tokenization involves creating identical tokens that represent assets, NFTs are unique. Every NFT has a distinct value and can't be directly replaced by another.
Exchangeability: Tokens are fungible, meaning they can be exchanged on a one-to-one basis—like cash or Bitcoin. On the other hand, NFTs, as the name suggests, are non-fungible. They can't be exchanged on a like-for-like basis.
Use Cases: Tokenization is often used for democratizing investment, especially in assets like real estate and businesses. NFTs, however, are widely used in the art world, gaming, and collectibles.

The exciting world of NFTs and tokenization is just getting started, and it's fascinating to see how these two concepts are shaping the digital landscape.

4. Steps to Implement Tokenization

Now that we've compared and contrasted tokenization and NFTs, you might be wondering how to implement tokenization in your own business. Here's a simple guide to get you started.

Planning Your Tokenization Strategy

Before diving into tokenization, it's important to have a clear strategy. Here's what you should consider:

Choose the right asset: First, identify the asset you want to tokenize. It could be anything from a physical asset like a real estate property or a digital one like a song.
Understand the legal implications: Tokenization is a new field, and the legal landscape can be complex. Make sure to consult with a lawyer who understands blockchain and cryptocurrency.
Define your goals: What do you want to achieve with tokenization? Are you looking to raise funds, democratize access to your asset, or something else? This will guide your subsequent steps.

Implementing Tokenization

Once you've planned your tokenization strategy, it's time to put it into action. Here's how:

Choose a platform: There are several platforms available for tokenization, such as Ethereum, Stellar, or Tezos. It's important to choose one that aligns with your needs and has a strong community and developer support.
Create your tokens: This involves writing a smart contract on your chosen platform. The contract stipulates the rules of the token, such as how many tokens represent your asset and how they can be transferred.
Distribute your tokens: Finally, you'll need to distribute your tokens, either through a sale, an airdrop, or some other method. This will depend on your goals and strategy.

Remember, the world of tokenization is still developing, and it's important to stay up-to-date with the latest trends and regulations. As you navigate this exciting new field, don't forget to keep your strategy flexible and adaptable.

5. How to Create NFTs

Now that we've walked you through the steps of implementing tokenization, let's switch gears and talk about how to create NFTs. This process is also exciting and can be a game-changer for artists and creators like you.

Preparing for NFT Creation

Before you start creating NFTs, there are a few things you should get ready. Let's go through them:

Pick your artwork: Decide on the digital artwork, music, or any other type of digital asset you want to turn into an NFT. Keep in mind, it's your creativity that will drive the value of your NFT.
Understand the costs: Creating NFTs also requires some upfront costs, known as 'gas fees,' in the form of Ether (ETH). So, you'll need to budget for this.
Set up a digital wallet: You'll need a digital wallet to store your NFT and handle transactions. Wallets like MetaMask or Trust Wallet are widely used.

Creating Your NFT

Once you're prepared, it's time to create your NFT. Here's a step-by-step guide:

Select a Marketplace: First, choose an NFT marketplace where you'll list your NFT. Some popular options include OpenSea, Rarible, and Mintable.
Connect your Wallet: Next, connect your digital wallet to the marketplace. Most marketplaces have a simple process to do this.
Upload your Work: Upload your digital asset and complete the necessary information such as name, description, and price.
Mint your NFT: Finally, mint your NFT. This is the process of turning your digital asset into a unique NFT on the blockchain. Keep in mind that this is where you'll pay the gas fee.

Creating NFTs can open up new avenues for showcasing your creativity and earning from your digital assets. As you venture into the world of NFTs, remember to stay true to your creative vision and keep exploring this exciting new space.

If you're intrigued by the world of tokenization and NFTs, don't miss the workshop 'Intro to NFTs' by Andrea Orejarena. This workshop will provide you with a solid understanding of NFTs, their potential applications, and how they can be effectively used in the creative industry.