From Digitalization to Tokenization: Evolving How We Represent and Coordinate Value
Understanding the differences between digitalization, dematerialization, and tokenization reveals how each stage transforms value, rights, and coordination in a digital world.
Somewhere in a dusty municipal archive, a land record sits tucked away in a crumbling file. It represents something much bigger: a family's security, a farmer's bargaining power, and a village's developmental potential. These are tangible assets that economists like Hernando de Soto have described as "dead capital" when they are poorly documented (De Soto, 2000).
Now picture scanning that record into a PDF. Suddenly, it becomes visible on a screen, searchable, and easier to share. This is digitalization.
Let us take it a step further by storing that record in a secure online system with unique identifiers and access controls. There is no longer any need to depend on fragile paper copies or aging file cabinets. This is dematerialization.
Then imagine encoding that ownership as a digital token, an object that carries its own rules, enforces access conditions, and can be subdivided, pledged, or exchanged without requiring manual verification. This is tokenization.
Each stage represents a fundamental shift in how we record and transfer value, rights, and obligations, and it opens up new possibilities for coordination and innovation. To better understand how systems evolve, let us now examine what differentiates these.
What Makes These Three Layers Different?
Understanding how digitalization, dematerialization, and tokenization differ helps clarify where systems stand today and what kinds of coordination are possible at each stage.
Digitalization: Visibility and Storage
Digitalization often begins with digitization, where physical records are converted into formats such as scanned documents, spreadsheets, or online forms. These systems mirror the paper world while improving visibility, speed, and access.
In 2024, Rwanda launched a nationwide digital civil registration platform under its National Identification Agency, significantly reducing delays and improving the accuracy of birth and death records (Rwanda National ID Agency, 2024). Similarly, the Philippines expanded its eGov PH Super App, consolidating services such as digital driver's licenses, tax payments, and health records into a single digital interface, aimed at improving accessibility for over 110 million citizens (Department of Information and Communications Technology, Philippines, 2024).
Constraint: Digitalization improves access and storage but often replicates analog workflows and still requires manual validation and external coordination. Without deeper system redesign, digitalized records remain passive, limiting automation and interoperability.
Dematerialization: Digital as Default
Dematerialization moves beyond replicating paper documents by making digital records the sole authoritative source. In dematerialized systems, records are created, maintained, and validated entirely within structured digital environments, with no physical equivalent needed for authenticity or operations.
A clear example is the transition in stock markets from physical share certificates to electronic securities. Today, public company shares are issued, recorded, transferred, and verified exclusively through centralized digital registries maintained by depositories, without any need for paper-based certificates. Ownership rights exist and are enforced purely through digital records, making the digital system itself the legal source of truth.
Governments are adopting similar models. Estonia now offers nearly all government services digitally, allowing citizens to access tax, healthcare, voting, and education services through a unified digital identity (e-Estonia Briefing Centre, 2024). This comprehensive infrastructure has positioned Estonia as a global leader in e-governance. In India, the DigiLocker platform demonstrates large-scale dematerialization, with over 512 million users and more than 9.4 billion authentic digital documents issued as of July 2024 (Ministry of Electronics and Information Technology, 2024). The platform enables faster access to welfare benefits, financial services, and educational credentials, reducing dependence on physical documents.
Constraint: Despite these advances, dematerialized systems often remain siloed within specific platforms or administrative frameworks. Limited interoperability1 continues to hinder seamless coordination across sectors and borders.
Tokenization: Portable, Verifiable, and Programmable
Tokenization moves beyond digitalization and dematerialization by turning rights, assets, and permissions into programmable digital objects.
A token can carry identity, ownership conditions, and transaction rules, making it portable across systems, verifiable without intermediaries, and operable within automated workflows.
Institutional pilots are demonstrating these capabilities. The Bank for International Settlements, through Project Helvetia Phase III2(2024), tested the settlement of tokenized assets with central bank money. The Monetary Authority of Singapore's Project Guardian (2023) explored the tokenization of trade finance, wealth management, and foreign exchange assets within regulated frameworks. Governments and financial institutions are adopting tokenization at scale. The European Investment Bank issued a fully digital bond in 2023, enhancing transparency and settlement efficiency.
Constraint: Tokenization requires interoperable technical infrastructure, consistent governance frameworks, enforceable legal standards, and regulatory clarity across jurisdictions. Without alignment across these layers, the full benefits of portability, programmability, and real-time verification remain difficult to achieve.
What Is Gained at Each Stage?
Digitalization, dematerialization, and tokenization each unlock different kinds of value. Progress across these stages does not need to happen all at once. Understanding what each stage offers helps clarify where systems are today and where they might need to move next.
How Can Digital Capabilities Be Matched to Real-World Needs?
Different countries and sectors are at different points on this journey. In some places, simply getting paper records into a digital format can deliver major improvements. In others, more advanced capabilities like tokenization are needed to manage complex interactions across multiple platforms. The key is not to push every system toward tokenization. It is about aligning digital capabilities with actual challenges. Sometimes, basic digitalization provides all the value that is needed. In more complex environments, systems require smarter digital representations that can verify, coordinate, and act across different institutions and platforms.
Recognizing these differences helps ensure that systems are not just technically advanced but also practically useful. The following table outlines how digital transformation capabilities grow stronger at each stage and what new possibilities they unlock.
Why Does This Distinction Matter?
Digital representation defines who can access services, exercise rights, and move value. Each stage of transformation expands what is possible.
In social protection, digital rosters improve administration. Databases enable direct cash transfers. Tokenized benefits deliver offline access, targeted spending, and pathways to credit and insurance.
In education, scanned diplomas are easier to send but still require manual checks. Digital certificates ease verification within institutions. Tokenized credentials empower graduates to share verified records instantly, across employers and borders.
Environmental systems show a similar shift. Digital registries track compliance. Tokenized assets automate carbon credit expiry, enable community ownership, and connect local projects to global markets without intermediaries.
Each step moves beyond access to empowerment, creating systems where users actively control participation and value exchange.
What Comes Next for Representing Value, Rights, and Relationships?
As systems interconnect, digital representations must coordinate identity, ownership, eligibility, and consent in real time. Tokens are dynamic containers of trust, verifiable, portable, and programmable by design. Building future systems around this principle is key to creating infrastructure, governance, and inclusion that scale meaningfully.
The decisions we make today about digital representation will determine who has power and opportunity in the digital world ahead.
References:
Bank for International Settlements. (2024). Project Helvetia Phase III: Settling tokenized assets in central bank money. Bank for International Settlements. https://www.bis.org/
Department of Information and Communications Technology, Philippines. (2024). eGov PH Super App expands to streamline access to public services. Government of the Philippines. https://dict.gov.ph/
De Soto, H. (2000). The mystery of capital: Why capitalism triumphs in the West and fails everywhere else. Basic Books.
e-Estonia Briefing Centre. (2024). How Estonia became a digital society. Government of Estonia. https://e-estonia.com/
European Investment Bank. (2023). European Investment Bank issues second digital bond on a public blockchain. European Investment Bank. https://www.eib.org/
Ministry of Electronics and Information Technology, Government of India. (2024). DigiLocker: Empowering citizens with digital documents. https://www.digilocker.gov.in/
Monetary Authority of Singapore. (2023). Project Guardian: Pilots in asset tokenization and DeFi applications. Monetary Authority of Singapore. https://www.mas.gov.sg/
Rwanda National Identification Agency. (2024). Launch of the National Digital Civil Registration and Vital Statistics System. Ministry of ICT and Innovation, Republic of Rwanda. https://www.nida.gov.rw/
International Organization of Securities Commissions & Bank for International Settlements. (2023). Tokenisation of assets: joint report. IOSCO and BIS. https://www.iosco.org/
All artworks are designed by Sanjivini Dwivedi
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The United Nations E-Government Survey 2024 reports that only 40 countries have achieved high levels of interoperability between their digital government systems, posing challenges for cross-border and cross-sector collaboration.
Project Helvetia started a multi-phase investigation by the BIS Innovation Hub, the Swiss National Bank (SNB) and the financial infrastructure operator SIX. The project explored how central banks could offer settlement in central bank money in a future with more tokenised financial assets based on distributed ledger technology (DLT), focusing on operational, legal and policy questions.