Vatsal Sanghavi et al.

, International Journal of Research in Engineering, IT and Social Sciences, ISSN 2250-0588,

Impact Factor: 6.565, Volume 08 Issue 11, November 2018, Page 60-64

Blockchain Based Asset Tokenization

Vatsal Sanghavi1, Ronak Doshi2, Devansh Shah3, and Pratik Kanani4
1,2,3,4
(Dwarkadas J Sanghvi College Of Engineering, Mumbai, India)
Abstract: Assets captured between the transacting parties are often leading to diputes from legal as well as
business point of view. To avoid these daedal contract conflicts, we developed a blockchain-based asset
Tokenization platform to liquidate assets like stocks, equities, estates, gold, etc. In this paper, we preview the
blockchain technology as a decentralized ledger and our application to provide quicker settlements and a
secure "Ownership Ledger" considering the feature of automatic execution of smart contracts.
Keywords: Blockchain , Ethereum Virtual Machine , Solidity , Proof-of-Work Algorithm , Proof-of-Stake
Algorithm , Delegated Proof-of-Stake Algorithm.

I. INTRODUCTION
There is no shortage of debate on this new way of documenting data on the Internet referred to as
‘Blockchain’. This disruptive modern day technology is simply a database of information in the form of public
universal ledger which collects its contents from the P2P network. This is accessible by every node in the
network and transaction of facts like monetary transactions have a discrete way of execution. Some modification
to be done to the ledger will have to be duly verified by other nodes i.e. by reaching a consensus for its
successful execution. This idiosyncratic manner of implementation of transactions gives Blockchain its ground
breaking potential. The two biggest factors which are believed to contribute significantly to the adoption of this
innovative technology in our mundane routine is its decentralised nature and data privacy and protection. This
technology doesn’t rely on a central governing authority but instead gives the control to the individual user. The
information is stored at multiple places among the participating network nodes at once and for this reason the
data is never lost unlike traditional transacting systems. This lack of a central point of control over data ensures
data security and privacy which has been on a downfall since the advent of Internet. This has been in buzz for
quite some time now as the parties captured in the transaction can operate anonymously with the trust being
intact and uncompromised. This is ensured by the use of cryptography and Proof-of –Work and similar
consensus protocols. The exclusion of any middlemen, central agencies or other correspondents helps the
transacting parties enter a bilateral agreement. This data that is packaged in the form of blocks which in turn
links with other such blocks forming a chain is trustless in nature. This is one of the main highlights of this
mind-blogging invention. Participants on the network unanimously agree upon the changes to be carried out and
so keeps the integrity intact at all times. This is executed via complex consensus protocols like Proof-of-Work
(PoW), Proof-of-Stake (PoS), Delegated Proof-of-Stake (DPoS).
Consensus technology has the power to do for economics what the internet did for information.
In this paper, Section II highlights blockchain and its functionality, Section III gives a brief idea about
smart contract and Section IV underscores an application of asset tokenization platform backed by smart
contracts.

II. BLOCKCHAIN
Blockchaining technology,even though has been under scrutiny for quite a long period of time now, we
are at a rudimental level of understanding about this disruptive technology. It is cryptographically secured trust-
free transaction economy. Immutable nature of blockchain can be said among the first few gunshots to start an
ongoing revolution in the economy world. This elimination of dependency on centralized correspondents goes
against the zeitgeist of conventional trading economy. It is justified as it overcomes the problems of
integrity,trust and authenticity which the conventional system is plagued with. Transaction of facts as in
monetary transactions in between nodes over a peer to peer network takes the advantage of cryptography and
consensus protocols. The consensus that each network node has to agree upon whether a particular transaction
should emerge on the distributed ledger or not is the block in blockchain[3]. Proof-Of-Work Algorithm which is
implemented by Bitcoin,Litcoin,Ethereum involves a complex mathematical puzzle to be solved requiring a
large amount of computational power. The miner(winning computer node) will then be incentivized when the
final result is verified by every other node in the P2P network.Proof-Of-Stake Algorithm put into use by
Nxt,Blackcoin has a totally different underlying base.Instead of drawing the results on the basis of
computational power, this considers the amount of stakes or currency in possession by the miner. Greater the
amount of currency, then greater will be the chances to secure the next block to be attached to the immutable
and transparent chain. These features of chain are warranted as it eradicates the need of governmental
safeguards and sanctions as every new transaction is built upon an already existing transaction.

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Vatsal Sanghavi et al., International Journal of Research in Engineering, IT and Social Sciences, ISSN 2250-0588,
Impact Factor: 6.565, Volume 08 Issue 11, November 2018, Page 60-64

The following is discussed to enhance the understanding of this complex blockchain technology supplemented
by a simplified diagram (Figure 2.1).

Figure 2.1 Blockchain technology

Sender- The user initiates the transaction by placing a request over the network for the same. Transaction is
referred to as a ‘fact’ in blockchaining terminology and in our case we have assumed it to be a monetary
transaction. The pre-requisite is that the user must have a wallet which is nothing but a software program
installed on the user’s mobile or computer. This enables the user to conduct a cross-border payment.
Validation- This step involves the validation of user’s request for transacting as well as user’s status. These
activities are carried out by other nodes (computers) that are a part of the peer to peer network.
Block- After the verification, the validated transaction is integrated to a block.
Distribution- On termination of the Proof-Of-Work or other such consensus protocol dicussed briefly above ,
the node can then promulgate the contents of the block to other nodes over the peer to peer network.
Blockchain- The blocks are chained by hash values which ultimately marks the birth of an indelible record of
transactions made visible to every node connected to the network.
Receiver- The transfer of ownership of blocks to the digital address of person B who then receives the funds.
This provides a complete closure of trustless transaction over a network using this innovative blockchain
technology[6].
E Karafiloski and A Mishev, the author of “Blockchain Solutions for Big Data Challenges” defines the
blockchain process in a much identical manner. They consider it to be a solution that is opposite to every client-
server based system. According to them , blockchain is a database to store all transaction information. It is
described as a process wherein the activities involved are as follows:
1) 1)the node storing the received transaction in the respective transaction pool
2) validation of the structure and actions is carried out by employing pre-defined checks
3) mining is described as a continuous and constant calculation of the target hash which links the blocks
in the complex chain
4) the first node to mine the block by putting consensus protocols into service emerges at the winner
5) the corresponding block gets added to the blockchain and is now firmly established and highly unlikely
to change.
They further proceed with the description of protection of personal digital property and ultimately
IOT[2].
A smart contract, a computer generated agreement, is in the form of transaction block on the
blockchain network. These digital contracts contain the same amount of detailing to set policies like their
traditional counterparts, but the following features make them more desirable. They can accomplish tasks of
negotiation and is intended to digitally facilitate verification without manual efforts. The goal is to obviously
minimize the formalities and cost associated with the traditional route[2][5].Transparent and immutable nature
of blockchain can be said to be attributable to the success and broad spectrum of tangible applications that it
might have in the foreseeable future.

III. SMART CONTRACT

Smart Contracts can act as a substitute to the conventional system of contracts. This reduces the dispute
between the interacting parties and at the same time the legality and trust that is essential for any transaction to
take place is not jeopardized. There is no form of physical document or computer generated document that is
involved and desired task can take place within minutes which might give ‘any-to-any’ marketplace a solid
shape of reality. It is implemented via the use of blockchaining technology which is accepted by the World
Bank. The conditions for completion which make up the blockchain contract are stored on a decentralized
encrypted ledger. This operates in an objective manner and eradicates the possibility of manipulation by some

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Vatsal Sanghavi et al., International Journal of Research in Engineering, IT and Social Sciences, ISSN 2250-0588,
Impact Factor: 6.565, Volume 08 Issue 11, November 2018, Page 60-64

central controlling agency. The Figure 3.1 is a graphical representation of smart contracts. If blockchain is
congruous to trustworthy storage then smart contract is congruent to distributed trustworthy calculations[1].

Figure 3.1 Smart Contract

Traditional contracts along with blockchain gives rise to self-governing contracts which execute
automatically when the pre-defined terms are met. These so called smart contracts trust and will prove to be a
boon if the use is guided in the right direction.
These computer codes, also called blockchain or digital contracts, have the following characteristics to
facilitate business arrangements and avoid convoluted contract disputes.
 Security- Even though the transacting parties are anonymous , the contact is public ledger. All the
individuals involved have to agree upon the coded terms. The data is encrypted on a shared ledger and
as a result ensures security.
 Code- They are automatically executable lines of code which contain pre-defined conditions and are
stored on a blockchain. Additionally , their functionality is not just restricted to defined rules around
some agreement but they are also responsible for automatic execution of those obligations.Moreover,
creator can set up a format for the code accordingly to his will and so contracts can be designed as per
the requirements.
 Transparency- The terms and conditions specified in detail in the contract is under thorough scrutiny
and is made effective only when all the involved parties have a consensus. This need for precision is
satiated only when the information is open for everyone.
 Trust- The blend of security and transparency makes smart contracts unimpeachable.When all the
captured parties commit and bind by the rules defined only then will the contract execute itself. If some
error occurs in a transaction , a new transaction reverses the error and both these transactions will
appear on the public ledger[4].
With the help of these smart contracts, the old idea of tokenization of assets will become an
everyday reality in the not too distant future. This will create a new asset class called smart assets
allowing its ownership rights to be transmitted and traded on a global and secure digital platform. The
ability of frictionless transfers of real-world assets by blockchain is enabled by the introduction of
tokens.

IV. ASSET TOKENIZATION PLATFORM

Asset Tokenization is the process of converting an asset- items that are not very easy to deal with and
trade- into a digital token that can be manipulated over the blockchain system. This digital token with a unique
signature can permit the transferring of ownership from one entity to another. This also secures guarantee of
their legitimacy which is bolstered by the fact that transactions are immutable in nature.
Blockchain offer a smart alternative to traditional paper markets by making trade possible between two
parties using smart contracts. It helps streamline the processes that are involved in an economy and puts forth a
unique way of sharing ownership of unique objects. Ownership, in this modern world, is taking a new shape and
meaning altogether as it is made possible for an intangible or fungible or non-fungible asset to have multiple
owners. This is no longer an illusion as it might be the case for an individual trading i) via conventional brick-
mortar methods and ii) reluctant to adopt blockchaining to trade assets instead.
Intangible assets account for the bubble representing concepts or ideas which don’t have any physical
presence, rather than actual physical goods. Use-cases like Copyrights, patents, etc. contribute to the existence
of this bubble in the first place.

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Impact Factor: 6.565, Volume 08 Issue 11, November 2018, Page 60-64

Fungible assets are the ones backed by a physical resource. The prime examples being currency, oil,
gold and other precious metals etc. The processes involved for trading such assets is comparatively easier as
each asset is of equal value and so can be exchangeable in nature.
Non-fungible assets are not exchangeable like their fungible counterparts which is attributable to their
uniqueness. Use-cases like real estate, artworks make use of non-fungible cryptographic tokens to transfer, sell
or verify ownership.
To manifest this understanding of smart contracts and reflect it on the platform that is developed by the
team, the programming language Solidity forms the underlying base as it brings customization feature at our
disposal. The code runs on Ethereum Virtual Machine and it adopts ERC20 protocol standard for smart
contracts to issue tokens on the Ethereum network. To magnify the inherent features of modularity and
flexibility, proxy contracts enable interaction of the user with blockchain and the rich contracts define the
necessary logic and incorruptible set of business rules to be verified for transacting. This framework of Smart
Contracts deployed to the blockchain allows to perform the tokenization operation. The experiment involves
converting the captured asset into an equivalent worth of ERC20 tokens so that multiple investors can invest in
same asset with any amount of money. This is automatically cached in the public and immutable
cryptographically secured ledger.

Figure 4.1 Application demonstrating various assets

Figure 4.2 Functional Diagram

The Figure 4.2 gives a functional idea of the application to trade assets backed by smart contracts. The
flow of our application goes as follows:
1. Asset (Stocks, Pre-IPO Equities, Land and Real Estate, Gold, etc.) owners puts their asset into our platform.
2. Our platform in turn gives equivalent tokens to the owner
3. The amount of token allocation depends on the valuation provided or the valuation the land carries
4. The owner can now exchange these tokens in return for fiat/ crypto currency.
5. This eases the process of both asset buying and selling at a quicker pace.
6. Other use-cases are: Debt Syndication and crowd funding.
7. All the ownership details regarding token holders are stored securely on the blockchain thereby preventing
any false behaviour by any person.

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Vatsal Sanghavi et al., International Journal of Research in Engineering, IT and Social Sciences, ISSN 2250-0588,
Impact Factor: 6.565, Volume 08 Issue 11, November 2018, Page 60-64

Therefore, the use of smart contracts to tokenize assets right from ideas and personal details all the way
till real estate and stocks and carry out the normal market operations of buying, selling and verifying the
ownership of assets can become commonplace in the not too distant future.

V. CONCLUSION
The potential power of Blockchain cannot be limited.This is simply because it can be put into service
all the way from routine agreements to government and business agreements. In this paper, we briefly discussed
about the evolving blockchain technology and its most utilized application in the current times i.e. smart
contracts. We further described the systematic flow in which this amalgamation of smart contracts and
blockchain was brought into play to give pragmatic solutions to real world problems. The above claim is
substantiated by the development of asset tokenization platform to carry out normal trading operations in a
much efficient manner.Just like any other technology, smart contracts too have merits as well as demerits. The
former includes reduced cost and turnaround time. Unlike third parties making a hole in our pockets in the form
of fees, digital contracts save money by eliminating intermediaries.The latter includes the difficulty a person
might face developing lines of codes and if any alterations have to be made after the completion of execution, it
will prove to be unfeasible in terms of money and time. Upon close scrutiny one might be able to conclude that
this technology has a huge scope for improvement in future.It can help make the processes more automated and
streamlined.
However , this system is still under construction. .Even though predictions have been made, no expert
is in a state to make the decision of most important application of blockchain. As competition has taken the
driving seat instead of collaboration ,this is better left to the healthy process of natural selection.

VI. REFERENCES
[1] P.Satyavolu and A Sangamnerkar. “ Blockchain’s Smart Contracts: Driving the Nect Wave of Innovation Across Manufacturing
Value Chains”,Connizant,Chennai,Tamil Nadu,2017.
[2] E.Karafiloski and A Mishey , “Blockchain Solutions for Big Data Challenges”,IEEE EUROCON 2017-17th Int.Conf.On Smart
Technologies.
[3] F.Zaninotto, The Blockchain Explained to Web Developers , Part 1:The Theory , April
28,2016,[Online].https://marmelab.com/blog/2016/04/28/blockchain-for-web-developers-the-theory.html
[4] Manav Gupta, “Grasping Blockchain Fundamentals”,in Blockchain for Dummies , IBM Limited Edition ,Hoboken , NJ ,2017.
[5] Konstantinos Christidis and Michael Devetsikiotis, “Blockchains and Smart Contracts for the Internet of Things”, May 2016.
[6] Hiroki Watanbe , Shigeru Fujimura , Atsushi Nakadaira , Yasuhiko Miyazaki , Akihito Akutsu and Jay Kishigami, “Blockchain
Contract : Securing a Blockchain Applied to Smart Contracts”.

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