How to Buy an Apple
You want to buy an apple.
You walk up to the fruit stand. You see the apple. You hand over your dollar. The guy hands you the apple.
Now let's do it the way the financial system works.
You walk up to the fruit stand. You tell the guy you'd like to buy an apple. He says great, but you can't actually take the apple today. First, your request needs to go to the Apple Clearing Corporation, who will verify that the apple exists, that you have a dollar, and that neither of you are committing apple fraud.
Your dollar doesn't go to the fruit stand guy. It goes to a custodian, who holds it overnight in a trust account while a settlement agent confirms that the apple meets regulatory standards for transfer. The apple, meanwhile, is moved to a central depository, because nobody actually holds their own apples anymore. The depository holds all the apples on behalf of everyone and just updates a ledger that says who's entitled to which apple.
A day later, the ledger updates. You now officially own the apple. You didn't touch it. It's still at the depository. But a transfer agent has recorded your name as the legal owner of the apple, and if you ever want to actually hold it, you'll need to submit a withdrawal request.
The fruit stand guy, by the way, doesn't have your dollar yet either. His broker is waiting on the clearinghouse to finalise the settlement across all apple transactions from that day, because it turns out thousands of people bought apples at the same time, so rather than move each dollar individually, they batch the whole thing and figure out who owes who at the end of the day.
Three intermediaries took a small cut.
The apple is now slightly more expensive than it needs to be.
Now imagine someone says: what if the fruit stand guy could just hand you the apple, you hand him the dollar, and a system records it instantly, securely, and permanently without anyone else in the middle?
That's tokenisation.
Obviously this is simplified. The system exists for real reasons, risk reduction, default protection, scale. And tokenisation doesn't magically eliminate every layer. but it compresses them. The parts it doesn't remove, it makes faster and cheaper.
The point stands. We built a system around the best technology of the 1970s.
Tokenisation is what happens when you rebuild it with the best technology of today.
Cheers,
Louis Sykes
Senior Crypto Analyst, All Star Charts
