Tokenisation is the digital representation of an asset or interest using a digital ledger. In UK financial and technical discussion, the term is often used for creating a digital version of an asset and recording it on a shared ledger.
What a tokenised record can represent
The Bank of England explains tokenisation as creating a digital version of a financial asset, such as a share, bond or pound, that can be tracked and traded online. It describes the resulting token as computer code recorded on a shared ledger.
The Financial Conduct Authority describes tokenisation more broadly as the digital representation of assets and their ownership using distributed ledger technology. The details depend on the asset, the system and the arrangements around it.
A new record, not necessarily a new asset
Tokenisation does not automatically create a new underlying asset. The Bank of England characterises it as a new way of recording where an asset is and who it belongs to. In practice, the design and relevant arrangements determine what the record is intended to represent.
An important limit
A token or ledger entry is not, by itself, proof of legal title, contractual rights, the authenticity of an off-chain item or value. It can show a state recorded by that system and may be part of an arrangement that identifies or transfers rights. Whether it actually does so depends on the relevant legal and contractual arrangements, the underlying asset or issuer, and the facts.
This is a general explanation of terminology, not legal, financial or tax advice.
Sources
- Bank of England: What is tokenisation?
- FCA: Tokenisation in wholesale markets
- GOV.UK: Property (Digital Assets Etc.) Bill factsheet
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