From Automation to Tokenization

Introduction - Definitions

Automation

From wiktionary:

“The act or process of converting the controlling of a machine or device to a more automatic system, such as computer or electronic controls.”

Digitization

From wiktionary:

“The conversion of data or information from analog to digital or binary”

Digitalization

“The transformation of a process or system from mainly analogue form to digital form”

Tokenization

“Tokenization is the process of digitally embedding an asset such as a good or a right into a crypto token and storing and issuing it on a blockchain network.”

Automation has been around for a while and has spread tremendously thanks to digitization which has been transforming analog information into digital information. Digitization examples are, for example:

scanning a paper document and transforming this document into a pdf,
transforming a stock transaction into a Swift message,
transforming music in a digital format
…

The journey

To ease adoption, most often, companies automate existing processes based on the existing manual processes. This is fine until the volumes are increasing. When this point is reached, those automated processes start showing some weaknesses as they come from manual processes that have never been designed to sustain such high volumes. This is where digitalization comes into play.

To illustrate this, let’s look at the Swift network. The messages this network carries origin from the manual telex exchanged between the counterparts. Most of the fields have indeed been normalized but not all. Some text fields are still part of the protocol even for some important information. This makes full automation much more difficult to achieve, requesting a lot of resources such as Natural Language Processing to interpret the content of those un normalized fields.

Digitalization, supported by digitization is about streamlining seamless end-to-end digital information. The aim is to avoid any manual intervention (checks as well as data input) all along the chain. Digitalization, like automation, is quite disruptive on the existing teams: instead of performing manual tasks, the teams must monitor the digitalized process.

As the reluctance for adopting changes is sometimes quite strong, those digitalization transformations must be supported by a strong change management project.

Successful digitalization brings an increase in volumes which means that the control function is becoming increasingly important and requires more people. Therefore, strong professionals that have been managing manual processes should not fear for their future. They have most likely all the skills needed to control the digitalized process.

Moving towards Tokenization

We still have an issue with those digitalized processes as digitized information is not natively digital: a scanned pdf is not the original document which may be required for some processes. In that respect, tokenization brings together the process, which is coded in the smart contract and the data which is stored in the blockchain. With smart contracts, data become actionable. Data can trigger, in a fully secured way, some processes, benefiting for the trust a blockchain platform gives.

To illustrate this, let’s take the very common example of a process which is triggered when a signed document has been received. With a scanned document, the signature must be verified by an employee to make sure it corresponds to one of the signatures registered for that customer.

With a signed pdf, the process can be further improved as there is no need to have a human verification of the signature. This is good improvement but there is still an issue as the evidence of the approval is on a separate support.

On a programmable Blockchain platform like Ethereum, a smart contract could receive an approval cryptographically signed by the customer which proves the customer’s approval. This creates a transaction which can contain further operations that are all bundled in the same atomic transaction. If some documents have to be attached to the transaction, they can be referenced by a url pointing to the document and the cutomer’s signature will also contain the digest of the signed document.

With this technology, everything is in one place, the smart contracts seal together the process and its associated information.