This idea of provenance leads us very naturally to the concept of an asset life cycle. If we consider the history of an asset, then in some very meaningful sense, an asset is created, changed over time, and eventually ceases to exist. For example, consider a mortgage. It comes into existence when a bank agrees to lend a sum of money to a customer. It remains in existence for the term of the mortgage. As the interest rate changes, it determines the monthly repayment amount according to a fixed or a variable rate of interest. The term of the mortgage may be changed with the agreement of both the bank and the mortgage holder. Finally, at the end of the mortgage, it ceases to exist, although a historic record of it may be kept. The mortgage may be terminated early if the customer wishes to pay it off early (maybe they move home), or less fortunately if they default on the loan. In some sense, we see that the mortgage was created, the term was periodically changed, and then the mortgage was completed either normally or unexpectedly. This concept of a life cycle is incredibly important in a business network, and we'll discuss it in detail later, when we discuss transactions.

Returning to assets, we can see that during their life cycle, assets can also be transformed. This is a very important idea, and we consider two aspects of asset transformation—namely whether the the transformation involves division or aggregation, and whether it is a homogeneous or heterogeneous transformation. These terms sound a little intimidating, but they are very simple to understand, and best described using an example of each.

In the first example, we consider a precious gemstone that has been mined. In general, a mined gemstone is too large for any jeweler to use in a single piece of jewellery. It must be broken into smaller stones, each of which may be used for single item of jewellery. If we were to look at the history of a large, mined gemstone, we would see that it underwent a process of division. The initial asset was a gemstone, and it was transformed into a set of smaller gemstones, each of which was related to the original gemstone. We can see that the asset transformation is homogeneous, because although the smaller gemstones are most definitely different assets, they are the same type as the original asset. A similar process of homogeneous transformation often occurs with intangible assets, for example, when a large commercial loan or insurance request is syndicated among several companies to diversify risk, or when a stock is split.

In our next example, we consider the jeweler using a smaller gemstone. We imagine they use the gemstone to create a fine ring for a customer. To make the ring, they use all their skills to set the gemstone in a mounting on a bezel connected to a hoop via a shoulder. A jeweler's craft is to be admired—they transform a small block of silver and a gemstone into a valuable piece of jewellery. Let us consider for a moment the assets under consideration. We can see that the metal block and gemstone have been combined, or aggregated, to form the ring. We also note that the ring is a different asset to the gemstone or silver block, which served as inputs. We can see that these inputs have undergone a heterogeneous transformation because the output asset is of a different type.

These processes of aggregation and division are seen in many asset life cycles. It's very popular in manufacturing life cycles, but with intangible assets. For example, we see it in mergers, where companies can be combined together, or acquisitions, where one company ceases to exist by being incorporated into another company. The reverse processes of de-merger or spin-off is neatly described as asset division.