Which cryptocurrencies are security tokens?
Most cryptocurrencies are based on blockchain technology, which is considered a relatively reliable and secure type of distributed ledger. In addition, security tokens, a special kind of cryptocurrency, are gaining popularity nowadays.
What is a token? Technically all cryptocurrencies are tokens except for Bitcoin and Ethereum because they are the biggest crypts. Another meaning of tokens or altcoins are crypto-assets that reside on top of another blockchain, most often on the Ethereum blockchain.
What is the Utility and Security tokens’ difference?
There are two types of tokens, utility tokens and security tokens. People often deal with utility tokens and may not know they are called so. So what is the difference?
You can benefit from getting access to definite services or products by buying utility tokens. The holders of such tokens get a value equal to the price they paid for the token. They do not become investors in a common enterprise. Thus companies just want to stimulate buying their products and services in the future.
Security tokens, also known as equity tokens or investment tokens, are cryptographic tokens that use the functionality of blockchain, which is the basis of another cryptocurrency, to start their own development.
The benefit of investing in security tokens is having an ownership stake in a token issuer company. In addition, by investing in such tokens, owners of company shares want to profit from trading external assets under financial regulations as protection from fraud.
How to differentiate tokens with the Howey test?
Some utility tokens have characteristics of security tokens. Use the Howey test to differentiate the type of existing tokens. There are four parameters for identification: money investment, common enterprise, profit expectations, and profit from your or others’ efforts.
If in the result, you conclude that it was sold as an investment and you have a person to rely on, it is a security token. Thus, they shift traditional to new markets using hybrid blockchain models.
Pros and cons
Many corporate giants have announced the creation of platforms for security tokens trading. Thus they want to offer a simple and easy way to invest in blockchain technology for potential institutional investors.
Swiss Exchange and a newly created venture, Bakkt, intend to establish a regulated tokenized securities exchange for the best security tokens. The main features of tokenized securities that may enforce financial decisions in their favor are:
- Regulatory compliance. You do not have to worry about lawbreaking and scam.
- Cost-effectiveness. You can save on intermediaries services and exchange commission due to the application of the smart contracts.
- Speed. Blockchain transactions allow selling digital assets fast.
- Growing popularity. A tangible benefit of crypto tokens is higher liquidity prospects.
- Trading availability 24/7. Unlike traditional trading, crypto training is possible non-stop.
However, there are some limitations and regulations as opposed to the benefits. For example, there are restrictions concerning investors and exchanges. So, there is no possibility of free training that can negatively affect liquidity.
What are they – tokenized securities?
If you want to get more information about this new digital currency and get some investment advice, let’s look closer at the types of tokenized securities. Since this currency has appeared in recent history, the list is not long but engaging for those willing to get fractional ownership.
- Blockchain Capital is considered the first platform which introduced a public offering for security tokens.
- Spice VC offers a wide range of tokenizing services and nowadays prefers security to utility tokens.
- Science Blockchain raised capital with the help of an initial coin offering of a security token.
- Lottery.com is the company issuing tokenized securities that offer investors 7% revenue from lottery ticket sales.
Qualified professionals in cryptocurrency predict a bright future for this currency in financial markets because of favorable conditions for holders, such as voting rights, rewards, security, speed, equity, and many others. The future is after new cryptos.