Why blockchain technology is essential for digital asset ownership

Beyond creating digital currencies like Bitcoin and Ethereum, blockchain technology has many other use cases. One of the most important roles it has to play is in the ownership of digital assets.

The term digital assets doesn’t only refer to the cryptocurrencies you hold or even files that can be stored online or in digital appliances, such as images, artwork, audio, and video.

Increasingly, blockchain technology is playing a role in the tracking and recording of ownership of physical (or real-world) assets, such as documents, contracts, precious objects, and even real estate, effectively digitising them as well.

Blockchain’s uses beyond Bitcoin

Beyond digital currencies, blockchains function like vast distributed databases. While the Bitcoin blockchain cryptographically stores records of financial transactions, blockchains can be used to store all kinds of data, including ownership of digital assets.

Since blockchains are tamper-resistant, and it’s all but impossible to meddle with a record once it’s been broadcast to the network, this makes blockchain extremely efficient for proving ownership and authenticity.

There is great potential for artists to register the rights to their music, or writers to record their ownership of intellectual property without anyone being able to challenge or change it. Blockchain can also help small e-commerce businesses stay in control of their digital assets and how they are used.

Whereas we previously had to rely on trusted third parties such as lawyers, banks, or even governments to ensure the authenticity of our records, we now have a technology that can remove the middleman and make for a much more seamless and transparent process.

Beyond cryptocurrencies, financial transactions, and digital assets, blockchain technology can allow us to track and transfer ownership of physical assets, like shares, certificates, land deeds, property, and so much more.

Blockchain technology for digital assets

Digital asset ownership is increasingly important in the digital world. Let’s go back to the case of the struggling musician for a moment. Before file sharing and streaming services appeared, artists used to make a lot of money. But thanks to technological advancements, the value of their work has been greatly eroded.

While pay-for services like Spotify do give artists a cut, the compensation model is far from fair. To earn $7,000 on Spotify, an artist needs to register at least one million streams. Once this payout has been shared with other stakeholders, such as the record company and producers, the end compensation is pretty miserable.

Blockchain technology can allow artists to stream their music through certain platforms. They can then be rewarded fairly each time their song is played automatically through a smart contract system.

While it’s not a perfect system yet, there are several companies that are now offering this service. And the same is true for other digital assets, such as images, logos, text, customer reviews, photos, and more.

How does it work for physical assets?

Blockchain can remove the middlemen and the potential for data tampering at any stage. This means it can also remove doubt over the authenticity of ownership. Blockchains can be the perfect means to track ownership of just about anything from luxury goods to private equity.

One interesting company that is working on physical asset ownership through the blockchain is Australia-based Everledger. It uses blockchain technology to record the details of the provenance and ownership mainly of diamonds, but of other valuables as well.

How does Everledger know that the diamonds are authentic before they are registered on the blockchain? Here, it still has to rely on a trusted third party in the form of a major diamond certification company.

Despite this, Everledger shows that real-world assets can be tokenised – effectively becoming digital assets – through blockchain technology. It guarantees the authenticity of a valuable artwork or luxury goods. And it also records transfers of ownership of identified physical assets as well.

This could play a huge role in preventing the illegal blood diamond trade, reducing fraud, and even paving the way for the digitised ownership of assets such as real estate.

The need for data integrity

Blockchain technology itself is a means of recording and storing data immutably. When it’s used for financial transactions and cryptocurrencies, it can verify the data is genuine through a consensus algorithm that prevents double spending and proves the funds are there. But how do blockchains know that other types of data are authentic?

Clearly, we still have some way to go before we can rely on blockchain technology to manage our entire lives. If the data that is fed into the blockchain is erroneous, that data lives on forever. This is just one of the many problems that still need to be taken into account.

Blockchain technology is in its infancy. However, it is already proving itself as essential for digital asset ownership, and more than capable of proving physical asset ownership as well.

As with any disruptive technology, it will take some time before we see its full potential and before ownership of all our assets is tracked on the blockchain. But it’s going to be an interesting ride.