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Security Token VS Utility Token


Token are cryptocurrencies or Altcoins that are built on top of another blockchain. Tokens cannot exist without another platform on which they are built. Here is a list of platforms on top of which tokens can be created: Ethereum, MoonMoney, Omni, NEO, Qtum, Counterparty, Waves, Stellar, Bitshares, Ubiq etc.

Tokens represent the future of value creation and transformation via the world wide web. The value that these tokens represent is governed by the various laws of economics, where the simplest is supply and demand.

Token as such is a digital entity that can be programmed to serve varied functions or services. Most of us know tokens as a digital currency, but a token can serve different purposes like:

1. Currency: A token can serve as a form of currency, with a value determined through private trade.

2. Resource: A token can represent a resource earned or produced in a sharing economy or resource-sharing environment

3. Asset: A token can represent ownership of an intrinsic or extrinsic, tangible or intangible asset. For example, gold, real estate, a car, oil, energy, MMOG items, etc.

4. Access: A token can represent access rights, and grant access to a digital or physical property, such as a discussion forum, an exclusive website, a hotel room, or a rental car.

5. Equity: A token can represent shareholder equity in a digital organization (e.g. a DAO) or legal entity (e.g. a corporation).

6. Voting: A token can represent voting rights in a digital or legal system.

7. Collectible: A token can represent a digital collectible (e.g. CryptoPunks) or physical collectible (e.g. a painting).

8. Identity: A token can represent a digital identity (e.g. avatar) or legal identity (e.g. national ID).

9. Attestation: A token can represent a certification or attestation of fact by some authority or by a decentralized reputation system (e.g. marriage record, birth certificate, college degree).

10. Utility: A token can be used to access or pay for a service.

Often Crypto-investors get lost in the jargons used in the Crypto-world. One such confusing jargon is Security Tokens and Utility Tokens, taking this as a context, we will look into what these two represent, and how are they different from each other.

Security Tokens

Tokens that are and will remain “securities” (“Security Tokens”) — Token VC fund or tokens that mimic equity or debt

Securities Tokens is a broadly defined type of tokens that grants the right to assets held for trade or grants a possibility of getting a pre-defined financial benefit (interest or etc.). Usually, the countries for such tokens apply legislation regulating securities and they are the most strictly regulated as compared with other types of tokens. One type of utility tokens is called Equity Tokens that grant the right to their holder to the share of the company’s profit. In this they are like equity instruments, therefore, the more people purchase them the more they grow in value.

A considerable number of crypto specialists trust that security tokens will turn into an overwhelming form of ICO later on. There has already been a surge in the demand for security tokens. Security Exchange Commission (SEC) has also expressed their viewpoints with regard to the growing popularity of security tokens. The rules and regulations are quite stringent but this is the first step towards wide acceptance of security tokens.

Examples of Security Token are Polymath, tZERO, Bcap, SPiCE

Utility Tokens

Tokens that may qualify as non-security assets (“Utility Tokens”) — Network is built, tokens have immediate and meaningful use in purchasers’ hands

Utility tokens are prevalent in light of the fact that they give buyers future access to an item or service at marked down rates. An organization raises capital by the offer of utility tokens through an ICO. The capital is then used to build up the blockchain infrastructure and framework of the organization. It might seem similar to security tokens but there are distinct differences between them.

Example of this is Filecoin, which is a utility token that provides the token holders with access to decentralized cloud storage service. Supply of Utility coins is usually fixed in volume, the value of these tokens may change depending on the demand for such services.

Such type tokens are fairly widely exploited, however, investors often elude from acquisition of such tokens, an asset that they will be able to acquire for them in the future, and asset tokens related to its value may lose their value if a long period of time passes between the issue of tokens and the possibility of using them.

Examples of Utility Token are OmiseGo, Wysker, BAT, BNB

Security Token vs Utility Token

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