Centralized or decentralized distribution of energy? Which is better? By way of comparison: Would you rather send a letter by post or send the same message by e-mail? Which service do you typically use and why? Tokenization brings forth enormous advantages, for example, into the sector of energy, oil, gas, and emission allowances. Let’s see more.
What is tokenization? Tokenization means emitting digital tokens on the blockchain and assigning them a specific value and function. Tokenization is a new form of crowdfunding for companies and a new opportunity for investors to participate in promising projects at an early stage to benefit from their growth and future profit. Of course, the companies can still use shares and bonds. But the advantages and benefits of tokenization are overpowering.
Tokenization vs. Shares and Bonds
Tokenization is a smooth and cost-effective way to do things much better and faster than the old ways of using shares or bonds, all with untold transparency and accessibility. Let’s see some disadvantages of shares and bonds and advantages of tokenization.
Disadvantages of Stocks
- Listing Requirements: You can list your company’s shares only after you meet the stock exchange requirements and pay the entry fee (which is very high) and listing fees for every year.
- Fees: If you trade stocks, you must pay fees, whether you buy or sell.
- Time and analysis needed: It can be time-consuming to choose a stock.
- Affordability: Some stocks might not be affordable for some investors; and you cannot buy a part or a fraction of a stock.
- Diversification: With the prices of stocks, it is more difficult to achieve diversification.
- Volatility: Depending on the mass-media, stock prices can rise or drop.
- Risk: Choose a wrong stock, and risk losing your investment.
Disadvantages of Bonds
- Fixed returns: Compared to stocks, the higher safety of bonds comes with fixed and lower returns.
- Affordability: Most bonds are priced above $1,000, which might not be affordable for some investors. Again, you cannot buy just a part or a fraction of a bond.
- Diversification: With the high prices of bonds, it is more difficult to achieve diversification.
- Liquidity: While government bonds might be quite liquid, the bonds from smaller companies might be much more difficult to sell. The same holds true for bonds with high principal (face value), as there won’t be as many potential buyers.
- Interest rate risk: Unless you intend to hold your bonds till maturity, the value of bonds is affected by interest rates more directly.
Advantages of Tokenization
With tokenization, you don’t have to sell your company to tokenize it. You can just offer your tokenized “shares” without giving up your share in your company. You can also tokenize just a part of your business, and later on, decide to tokenize more. And nobody can “steal” your company since this danger is not present in tokenization.
The tokenization brings in some more advantages over shares and bonds:
- Listing Requirements: You can issue your company’s tokens for a fraction of the price required for stocks. The requirements and conditions are much easier to meet.
- Affordability: Since the tokens can have up to 18 decimals, your tokens can be affordable for most investors who can buy just a fraction of the token.
- Diversification: With the affordable prices of tokens, it is quite easy to achieve diversification and own tokens of multiple companies and projects.
- High liquidity: You can buy and sell tokens in a matter of minutes. You can easily sell just a fraction of your portfolio.
- Transparency: All transactions are transparently recorded on the blockchain – an immutable public ledger.
- Anonymity: While each transaction is available on a public ledger, the process itself is anonymous if this is important to you.
- Trend and price: You can see it at any time, instantly.
- Fees: Zero fees for management of your assets, and very low transaction fees.
- Staking: You can incentivize investors into your company (e.g. with an interest rate) to keep their crypto assets at an exchange. The process is similar to the term deposit on a bank account, but usually with much higher returns.
Tokenization of Energy, Oil, Gas, and Emission Allowances
Tokenization is a ground-breaking field. Sooner or later, nobody will want to go back to the old ways of doing things – in the same manner most people don’t send letters from the post office anymore, giving preference to e-mail or SMS. Let’s have a look at the tokenization of energy, oil, gas, and emission allowances.
Tokenization of Energy
Energy rates are typically set by centralized authorities, be it the government or the energy supplier. Some rates are inflated just to dissuade users from using such type of energy; some rates are pushed to those who cannot choose any other alternative. Switching energy suppliers is not easy.
Clearly, the centralized distribution of energy is quite archaic, expensive, slow, and impractical. The blockchain can transform all this and give more power and choices to the end users who are overlooked by the present system.
With tokenized energy, market supply and demand will be driving the prices, rather than central authorities. This will make the costs fairer and thanks to the blockchain, the whole process will be transparent to everybody. The consumers can get real-time data on energy usage to optimize the use of energy in their businesses and households. The end users can be incentivized through tokens to save energy, with rewards changing according to the demands in the energy grid.
Tokenization also allows for peer-to-peer energy trading. For example, if you produce your own energy using solar panels (or by any other means) and generate more than you can use, you will be able to offer this energy to others. This can be a brilliant solution for smaller communities where users will be able to distribute and trade energy effectively.
All in all, the blockchain technology and tokenization of energy brings in many advantages, for example:
- Transparency in energy costs.
- Real-time data on energy usage.
- Easy optimization of energy usage.
- Incentives and rewards to save and store energy.
- Prices according to market supply and demand.
- Peer-to-peer energy distribution and trading.
- Generally, much “greener” systems.
Tokenization of Oil and Gas
Oil and gas can be tokenized similarly to energy. For example, already in 2018, Venezuela issued its token, Petro, or Petromoneda – cryptocurrency backed by the country’s oil. To put it simply, Petro tokens should represent a share of oil barrels in a tokenized form, where 1 Petro is equal to 1 oil barrel. Although the whole project doesn’t seem to enjoy wider acceptance, for all kinds of reasons, including the U.S. sanctions, it showcases the possibilities of tokenization.
With oil and gas, the companies can issue tokenized shares of stock in their company. They can tokenize the whole process by using smart contracts on the blockchain. Thanks to tokens, smaller investors can buy a stake in such a company.
The blockchain and tokenization brings forth more transparency. Thanks to this, investors and token owners have real-time information and know exactly what they are paying for. Thus, this solution is very effective and simple.
Tokenization of Emission Allowances
Emission allowances are aimed at limiting greenhouse gases (GHGs) that are the cause of global warming when the heat is trapped in the Earth’s atmosphere. The main greenhouse gases are:
- Carbon dioxide (CO2) caused mainly by burning fossil fuels (coal, gas, and oil).
- Methane (CH4) from the production of gas, oil, coal, and from agriculture (e.g. from livestock, organic waste, etc.).
- Nitrous oxide (N2O) from agricultural and industrial activities.
- Fluorinated gases – synthetic gases, emitted during industrial processes (perfluorocarbons, hydrofluorocarbons, nitrogen trifluoride, sulfur hexafluoride. These potent gases are sometimes referred to as “High GWP gases” – gases with “High Global Warming Potential.”
The Emission Allowances are tradable, centralized certificates issued by governments, entitling the certificate holder to emit one tonne of greenhouse gases to the atmosphere. Carbon Removal Certificates (CRCs) are aimed at removing greenhouse gases from the atmosphere. Each CRC stands for one tonne of greenhouse gas removed from the atmosphere.
This market has at least two segments:
- Buyers: Emitters (businesses or individuals) who are adding GHGs into the atmosphere and paying for its management, committed to reducing their carbon footprint by removing more GHGs from the atmosphere than they emit.
- Suppliers: Businesses or individuals that would focus on removing carbon dioxide and thus driving the creation of carbon removal certificates.
Emission Allowances and Carbon Removal Certificates are aimed at reducing emissions affecting the atmosphere. Thanks to the blockchain and tokenization, all these processes can be done much more effectively, with much lower costs and absolute transparency. For example, a token can represent one tonne of Emission Allowance or one tonne of Carbon Removal Certificate. Since the blockchain is an immutable public ledger, thanks to this modern technology, the aim of protecting our Earth’s atmosphere will be achieved in the most effective and best way.
How to Take Advantage of the Benefits of Tokenization
We have compared stocks and bonds with tokenization, and looked at energy, oil, gas, and emission allowances. In all these fields, the key benefits of tokenization are obvious, among others:
- Easier quality control and auditing.
- Transparency thanks to permanent, immutable data.
- Data is always easily and efficiently accessible on the blockchain.
- Simplified trading with a high potential to widen and increase the trading market.
- Much cheaper or more affordable processes.
- Higher and faster liquidity.
- Peer-to-peer offerings and trading.
- Timely information on the availability of assets and resources.
- Current prices are always at hand.
Tokenization is clearly the way to go; it can be used in many businesses, always with a better performance-to-price ratio than the current way of doing things. True, for many, this is a completely new field. If you need assistance, don’t hesitate to turn to DEXFIN, which can help you with all your processes when it comes to tokenization.