What Are Security Tokens - A Complete Overview

What Are Security Tokens - A Complete Overview

Before stepping into the complete overview of security tokens, it would be better to have a look at what is a token and what is a cryptocurrency.

What is a Cryptocurrency Token?

As we well knew that, cryptocurrency is a digital currency, likewise a cryptocurrency token is a virtual token so-called cryptocurrency denomination. 

Based on its own blockchain, a token can be identified as to whether it is a tradable asset or utility token. Which let the token holders spend it for investment or economic purpose. Users can create, distribute and manage tokens.

What is a Coin (Cryptocurrency)?

Coins refer to any cryptocurrency that has an independent blockchain. Example: Bitcoin, Altcoin.

Chief Difference Between Token and Coin

The two most common blockchain-based digital assets are cryptocurrencies and tokens.  

Coins - Have standalone blockchain (Bitcoin, Ethereum, Ripple)
Tokens - Live on another blockchain (Ethereum Based, Tron Based, NEO Based Blockchain)

Hope, now you know about the contrasts of token and coin. Let us move on to the fungible and non-fungible tokens

What Is a Fungible Token?

Fungible tokens are commonly used as a monetary value and are exchanged as currencies. In the exchange of fungible tokens, it does not hold any meaning, since they have the same value which is chiefly utilized to track balances and make payments. 

Non Fungible Tokens

The crypto tokens which hold data in place of value and are unique are known as non-fungible tokens. No two NFT’s can hold the same value. These tokens do not inherit any value as well as differ from cryptocurrencies.

Fungible Tokens and Non-Fungible Tokens

Fungible: Easily Interchangeable used to buy and sell assets. They have no additional value.
Non Fungible: Also interchangeable with unique data value

Fungible: Depends on ERC-20
Non Fungible: Based on ERC-721 Standards

Fungible: Chiefly used to make payments and track assets
Non Fungible: Chiefly used to represent owners unique entity

Fungible: Value transfer depends on the number of tokens in an owner’s possession.
Non Fungible: Value transfer is based on the unique value that a token possesses.

Categories of Token

There are several types of blockchain tokens. Some of them are

1. Security Token

Security tokens are asset tokens issued by ICO which give users ownership of real-world assets like traditional stocks or bonds. Security tokens use blockchain’s decentralized database system for the tracking of asset ownership. Security tokens let users undergo multiple investments. 

2. Transactional Tokens

These tokens are utilized in the goods or services exchange that usually functions like standard currencies.  

3. Utility Token

Utility tokens provide owners with access to specific products and services. These tokens can be used on platforms to avail special favors or tracking to services.

Well, now you have grabbed a deep understanding of crypto tokens with their categorizations. Let us enter into the security tokens now. 

What is a security token offering and how does it differ from initial coin offerings? Proceed further.

Security Token - New Securities Were Born in the form of security tokens. This is a regulated version of digital tokens.

STO Vs ICO

ICO - Just a crowdfunding model without any security involvements. 
STO -  A type of crowdfunding model with security placements.

ICO - Sells Utility Tokens
STO - Sells Security Tokens.

ICO - Not a Regulated Firm
STO - Regulated firm of Digital Token

ICO - Investors can claim the product or services alone after the launch
STO - Gives rights to claim the share of profits

ICO - Any investors can participate
STO - Only professional investors can participate. Since the STO Considers Investors as business partners. 

Why is Security Token Significant?

Security tokens are significant because of the following reasons.

A. Preferable liquidity options

B. Reduced cost against IPOs

C. Segmented ownership

 A. Preferable Liquidity Options
 
Fully licensed exchange platforms will now soon be available for security token trading. This will automatically increase trading confidence because of the added credibility. Since a real-world asset can be represented via security tokens, it will enable investors to liquidate security tokens against any product.
 
B. Reduced Costs Against IPOs

In the non-crypto world, only a few companies go public because that progress needs a lot of money in the first place. As such, investors have the option of buying the shares of very few companies.
However, STOs, on the other option, can be started right away since they are a lot cheaper than public companies. They reduce costs by completely removing all the inter mediators. Also, having more STOs will allow more folks to invest in the shares of more companies.

C. Segmented Ownership
 
Security tokens will make high-priced assets a lot more accessible for normal people. Security tokens can easily segment and asset into smaller subdivisions making it possible for an investor to own a fraction of the asset instead of the complete product

Types of Security Tokens

1. Debt Token

A sort of security token for debt-based instruments like corporate bonds, real estate contracts which is identical to the short-term loan. The debt security token price is derived from two factors as risk and dividend. 

Benefits of Debt Token

(i) Fractionalization 

(ii) OTC Trading

(iii) Universalities

(iv) Composability

2. Equity Token

An equity token is another sort of security token that resembles the ownership of an asset. such as company stocks.

Benefits of Equity Token

(i) Proven Statistics

(ii) Secure regulations 

3. Asset Token

An asset Token is a type of reserved security token that signifies the ownership of certain real-time assets like Real estate, gold, and other commodities.

Benefits of Asset Token

(i) Transparent

(ii) Accessible

(iii) Cost-effective

(iv) Divisible

(v) Immutable

How Does a Security Token Work?

Still, traditional token authentication systems are in effect today. With the rise of smartphones, token-based authentication is simpler than ever. Smartphones distribute passcode generators, furnishing end users with the security passcodes essential to receive access to their network at any time. 

During the login process, users receive a cryptographically secure OTP that valid up to 30 or 60 seconds, as per the server end settings. These soft tokens are generated through the device app authentication or by on-demand via SMS.

The significance of smartphone token-based authentication symbolizes that most staff have the hardware already to generate the codes. As a result, making this token-based authentication form has become a tempting option for several companies.

Why To Invest In Security Token?

Security token offering is an innovative technology that vanishes the boundaries in business investments and brings the crowdfunding platform safer and secured. These fantastic features vividly give the answer for the need of STO. Additionally, it is because of the following reasons. 

(i) High Security

(ii) Divided  Shares

(iii) Smart Contract

(iv) Global Investors

Build Your Own Security Token With Security Tokenizer

​Securitytokenizer is the leading STO development company that provides profound services in security token offering, security token exchange development, STO legal service, STO consulting service and STO marketing service, and a lot more. Security Tokenizer lets you promote your business ideas to the next level

Click Here To Know More

 

About Rajashree

Howdy! This is Rajashree. I am a passionate professional always thirsty to grab knowledge about the Security Token Offerings. Presently working as a blogger and technical consultant in Security Tokenizer and well versed in crypto tokens. With 4+ years of industry experience, I am enchanted to distribute my insights regarding the STO. Stay tuned to attain the STO vertical blog updates.

View all posts by Rajashree →

Leave Your Comment

We never share your information. We respect your Privacy *

Talk to Our Experts

We will get back to you through email or call within 1 business day.

Subscribe Our Newsletter
Follow us on TWITTER
Follow us on Facebook