In April, when Bitcoin halving slashed block rewards for miners by half (3.125 BTC), Peter Schiff, the long-term crypto skeptic and investor, declared that tokenized gold is better than Bitcoin.
Turns out the man’s skepticism was heard well. It was time for tokenized gold on Bitcoin! Yes, it is better than Bitcoin’s ‘digital gold.’
Ordinalsbot and Swarm Markets recently tokenized a 1-ounce gold bar using the Ordinals Protocol on Bitcoin, a significant development in many ways.
We will discuss it, but first, we will discuss Bitcoin Ordinals and their relevance in the tokenization space.
What are Bitcoin Ordinals?
Bitcoin Ordinals are similar to NFTs (non-fungible tokens) except that they are inscribed on individual satoshis, the smallest unit of Bitcoin. One satoshi is equal to 1/100,000,000 of one bitcoin.
Ordinals can be inscribed with data or images. Given the individuality it attains once the satoshi is carved, each ordinal has a unique value. Also, there will always be a limited number of ordinals, as the number of bitcoins will always be no more than 21 million.
Now, what did Swarm Markets do, actually? Swarm Markets is a real-world assets (RWA) platform licensed by German regulator BaFin. In collaboration with OrdinalsBot, Swarm Markets inscribed Bitcoin satoshis with unique gold kilobar serial numbers. This way, gold bars can be represented as Ordinals on the Bitcoin network and traded using the Ordinals Protocol.
Swarm co-founder Timo Lehes said, “Investors no longer need to debate whether they should hold real or digital gold when Swarm’s Ordinals offer the ability to hold both simultaneously using one blockchain as a common infrastructure.”
You can trade Gold as an RWA on Trio, a marketplace by OrdinalsBot. The marketplace will launch at the end of the year.
How Can Gold and Other Assets Be Tokenized on Bitcoin?
Tokenization of gold or other assets will occur similarly to during a regular tokenization process.
Tokenization is converting any asset, physical or digital, into tokens on a blockchain. The tokens now represent the actual asset on the blockchain, while the asset remains as it is, whether in custody, wallet, or museum, depending on the asset.
In the case of Bitcoin, the process happens over already-minted satoshis or units of Bitcoin. The data/image related to the actual asset gets imprinted on the satoshi forever, and the transaction trail related to that satoshi gets recorded immutably and transparently on the Bitcoin blockchain.
When represented as ordinals on the Bitcoin blockchain, gold can be easily bought, sold, exchanged, and traded as tokens online. The actual custody of gold remains with the owner or custodian.
Bitcoin is often called digital gold because its properties mimic gold. Both gold and Bitcoin are scarce and finite (Bitcoin is more scarce). Both Bitcoin and gold are considered a hedge against inflation. However, your gold is not a safe asset. It can be stolen or lost.
When inscribed on Bitcoin, Gold acquires the properties of Bitcoin and becomes even more scarce, secure, and tradable.
In addition to gold, King of Rock and Roll Elvis Presley’s digital art collection will be inscribed on the Bitcoin network. The collection will have 1,935 generative images named “Elvis Side $Btc.” Royalty, a Bitcoin-focused IP project, will mint these images in partnership with OrdinalsBot, a Bitcoin-focused inscription service.
Is Tokenized Gold Better Than Gold-Pegged Stablecoins?
Stablecoins are the earliest cases of tokenization to be used. However, stablecoins are fungible tokens and are not unique, unlike tokenized gold or other tokenized assets. Fungibility implies that you can exchange one USDT for another. But that’s not the case with tokenized gold. Each gold bar tokenized will have a unique identification number and significance.
Also, though we know stablecoins to be pegged to actual gold, dollars, or other assets, we cannot know whether the reserves with the Tether Foundation or Circle fully support the stablecoins we own. That’s entirely possible in the case of tokenized gold.
You will always know that the Odinal or gold RWA you are holding is pegged to a gold bar placed at a particular location with a specific custodian.
Also, stablecoins can grow in numbers much more than tokenized gold. Tokenized gold on Bitcoin will always be in limited supply and benefit both from the scarcity of gold and Bitcoin.
A stablecoin will forever remain equivalent to a particular value or gold to which it is pegged. In the case of tokenized gold, it becomes an asset that gains value as it is traded and sought after by more traders and investors.
Is Bitcoin an excellent platform for Tokenization?
Bitcoin remains a formidable network and token in the crypto world and beyond. It has institutional backing, and anything backed by Bitcoin’s privacy, security, and immutability will inherit; given the way Satoshi Nakamoto designed it, Bitcoin is not essentially programmable. The network will always have limited capabilities, and it will already be under strain. The proof-of-work consensus mechanism, though secure and foolproof, is painfully slow and energy-intensive.
The Bitcoin fee spiked to a new high after the fourth halving. Other protocols are experimenting with DeFi le tokens on the Bitcoin base layer. Using the Bitcoin network as a platform for minting Ordinals or ‘Bitcoin RWAs’ won’t be feasible for everyday use.
For now, every DeFi or tokenization event on Bitcoin will be an experiment until Bitcoin learns to gain efficiency, scalability, and affordability. Until then TokenFi is there to help you tokenize any asset, except security, with our soon to be launched RWA Tokenization Module on many popular blockchains.
