Tokenization of Assets
Mario Wiedl
December 2, 2021

The underlying technology behind product-level traceability

Traceability is the concept of digitally reconstructing the entire journey of a product. A data-based model of the product shows the system's user every step along the product lifetime - from the production all the way to the delivery of the finished product to the end client. This concept can be adapted to all kinds of products and their individual supply or value chains.

In order to establish a traceability system, we need to be able to trace products individually. Almost all companies provide general origin and production data about their products. The upcoming trend we see, though, is data linked to a specific product, which allows the consumer to individually access data about the product he holds in his hands. To establish this in a blockchain-powered database, we tokenize the product. Tokenization is the process of creating a digital version of a physical asset, i.e., the product. The system consequently holds one token for each product. 

A token is not a coin! Tokens are not pieces of cryptocurrencies and can not be used for payments. A token is a technical instrument that allows us to create digital twins of physical products inside a blockchain system.  

Once the token has been created, and a digital version of the asset exists in the system, data can be allocated to each individual token. With the unique technological capabilities of blockchain, the system can easily match input data with a particular product, even when a system stores several tokens at the same time. For example, with QR codes or Bluetooth beacons, depending on the system architecture. 

Determining the Token

It might not always be necessary to tokenize individual products. In some cases, it doesn't add any benefit to the dataset. Hence tokenizing a batch of products is sufficient. The technical capabilities are given to tokenize products at any level. The question arising at the beginning of the development process is what level of depth makes sense for the desired use case and what information the user of the traceability system wants to get out of it. Depending on the product, a token can represent a single product or a range of products - a batch. The key factors for this decision should be: 

• Pricing: customers paying high prices for premium products are more likely to demand product-level data to justify the high selling price and prove if it actually is the premium product the seller claims it is
• Specifications: depending on physical product specifications like size and weight, individual tokenization might not even be possible or relevant
• Sensitivity: if wrong handling, transport, processing, or storage can spoil the product and cause damage to consumers or stakeholders on the supply chain, it is favorable if the product journey can be traced as detailed as possible
• Products prone to child labor
• Products originating or passing through opaque jurisdictions
• Any other products with a flawed public conception for any reason
• Products often exposed to impurities or viruses
• Supply chains that have historically been exposed to manipulation

Product-level tokenization: Tuna 

Traceability in the fish and seafood industry is very relevant. The supply chains are highly sensitive, and mistakes can lead to serious consumer health consequences and even death. Starting with impurities in the growth process, seafood can become spoilt on multiple occasions along its production process. Adherence to cold chains, cleanliness requirements of the processing facilities, and proper handling of the seafood has to be given at any time. Whereas standards products (like canned tuna) are far from an expensive premium product, big tunas can be extremely expensive and sought after. Buyers would typically include seafood restaurants, high-end fishmongers, and wealthy private individuals. Tunas sold at special auctions in Japan regularly achieve prices of several million USD, with the record set in 2019 at over 3 million USD purchased by a Japanese sushi restaurant owner. Whenever customers are willing to spend such exorbitant amounts of money for a premium product, detailed and gap-free documentation of the product is needed. Premium tuna is sold in individual pieces, not in batches or by the kilo, and buyers are interested in assessing the individual fish before purchasing it to determine whether it fits their quality standards. That means that premium tuna has to be tokenized individually if to be traced through a blockchain-based traceability system. 

Unit tokenization: Caviar

Caviar has a highly complex supply chain. For several reasons, tokenization has to happen at the most individual level possible. Caviar is a luxury product. Depending on origin and type, an ounce of caviar can easily cost several hundred USD. Customers will be more comfortable spending large amounts of money when having detailed data at hand about origin and production. Tokenization at unit level (i.e., individual cases, usually between one ounce and one kg) gives consumers the most detailed data about their purchase. Caviar should be tokenized in small batches for another reason, too - its origin. Caviar is produced, processed, and then transported through, often several, somewhat opaque jurisdictions with few regulations in terms of food safety and high levels of corruption. That makes the product prone to be watered-down with an inferior quality or illegally produced caviar. Currently, prove of origin is paper-based and very easy to manipulate. Also, caviar is a seafood product, product-based transport, and product-handling data can prevent consumer health incidents, as mentioned in the above paragraph about tuna. 

Batch tokenization: Coffee

The price and quality range of coffee is vast. Industrially produced standard coffee can be bought in any supermarket starting at very affordable prices. Coffee is a staple product and consumed daily by people around the world. Although coffee lovers will find plenty of specialty products with prices ranging to well over a thousand USD per kg. Considering the complex production process and the remarkably high prices, this kind of coffee is clearly to be considered a premium product. So again, coffee-lovers who are willing to spend that much money on a kg of coffee expect proper documentation of its origin. Coffee beans obviously won't be tokenized individually. There would be no benefit to the consumer, and the process to do so would consume more time and money than the entire production process. Coffee is tokenized in batches. These show the consumer all necessary information such as origin, date of harvest, information about the farmer, growing condition, and money paid to the farmer. The size of the batches usually depends on the amount of coffee purchased - usually, a batch would be the number of coffee beans that the coffee importer buys from the farmer at once. The most critical data will be added to the database after the coffee leaves the farm. Gap-free traceability shows the buyer that coffee beans have not been watered-down with inferior quality beans along with the supply chain, and transport and storage data shows the age of the product. 

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