According to Bloomberg, cryptocurrencies emerged during the 2008-2009 financial crisis as an alternative to traditional banking systems. Initially dismissed by many, including the pseudonymous inventors of Bitcoin, cryptocurrencies have now gained significant traction. Over 15 years later, numerous financial institutions on Wall Street are not only involved in the cryptocurrency market but are also adopting blockchain technology for various applications.

One notable application is 'real-world asset tokenization,' which involves representing tangible assets such as bonds, stocks, art, and real estate as digital tokens on a blockchain. Ownership of these assets can be transferred quickly and efficiently by moving the corresponding tokens between digital wallets. This process can eliminate settlement delays caused by multiple record-keeping systems and intermediaries. Additionally, blockchain can store contractual information, allowing assets to be bought and sold in pieces and traded outside of regular market hours. Tokens can also be programmed to execute specific actions automatically, such as releasing funds upon delivery of goods. This innovation could attract younger investors who are already familiar with trading cryptocurrencies.

The potential for tokenizing a wide range of assets is vast. Stocks, art, real estate, and even exclusive memberships can be represented on blockchains. Some companies, like Nike, are already using blockchain to verify the authenticity of their products. However, US banking regulators have yet to approve certain innovations like deposit tokens, citing concerns that instant settlement could exacerbate bank runs. Customers could use programmable tokens to withdraw funds automatically in response to negative news. Despite these concerns, regulators in other regions are more open to these advancements.

Tokenization could disrupt existing financial intermediaries such as broker-dealers, who currently facilitate many transactions. The structure of a tokenization project is crucial; with blockchain, each asset has a single record, and the holder of the token owns the asset. If a token is transferred to the wrong address or stolen, it may be irretrievable, especially on a public blockchain. To mitigate these risks, many banks are developing private blockchains. For substantial interbank transactions, these private blockchains will need to be interoperable. Given the significant investment of money and talent by banks, it is likely only a matter of time before these systems are fully functional.