Security tokens are the latest buzzword in the field of investment and cryptocurrencies. What exactly are security tokens and how are they influencing the world of investments and Technology? Let us explore all that the future of investment and security has to do...in detail.
What is a token?
To understand security tokens, it is important to understand what tokens exactly are. However, the definition of tokens is a little vague. A token can be described as a representation of a value for anything or a placeholder or something that authorizes you for an entitlement. If you are standing in a queue to avail a service, a token could proclaim that you belong to a specific position in the queue which might not have been possible otherwise.
So how exactly do this token works in the world of securities?
Before understanding that, we are called to know what the different kinds of tokens are.
Difference Between Cryptocurrency and Token
It is important to understand the difference between a cryptocurrency and a token. A cryptocurrency like Bitcoin or Ethereum is independent of platform and can be used as a proper currency outside that native environment. On the other hand, there are tokens like OmiseGO whose value is contingent on the platform on which day exist.
A token is a representation that a company has and it is distributed to the investors during the public sale called initial coin offering abbreviated as ICO, which is very much similar to IPO.
In the world of cryptocurrencies, a token is something that you buy in exchange for a utility or security. This brings us to have two different kinds of tokens called the utility token and the security token.
So how exactly does this token work in the world of securities?
Before understanding that, we are called to know what the different kinds of tokens are.
Utility tokens
Utility tokens are the ones that can be exchanged for a utility and might not have any monetary value. The token could be in terms of voting or a better power or it could be in terms of exploiting certain premium features of the software. A security token might not translate into direct money but utilizing the security tokens to affect something might result in greater profits.
What are security tokens?
Quite contrary to the utility tokens, security tokens have a certain value. When you are talking about securities, we are talking about investments that have a certain relevance in the future that might be sold one day for better profits based on financial fluctuations. Security tokens also have opened up avenues to bring in investments from all pockets and to all industries.
Security token Offering👆 is simply a representation of your contribution in investing towards a certain cause or a company.
A security token is subject to multiple regulations that mandate a few conditions. At an overview, the conditions prohibit false and misleading statements, dependency on external factors in specific control for the fluctuation of values and limits for accredited and non-accredited investors.
What are the advantages of a security token
Security tokens democratize is the entire system of investments. It makes the big corporate Giants a possible channel for investing even when it comes to small investors. Since security tokens are very low in value and very high in numbers, it can also help investors diversify their portfolio.
It also helps a lot of companies get their investments from various pockets which might not have been possible. It also dilutes the chances of a Monopoly which might result in the company not getting its freedom to progress in the direction of innovation.
Above everything, security tokens also help cut the middleman which also results in a financial loss during every transaction. Since the smart contract resides right within the blockchain, there is no need for middlemen to mediate the transaction.
Disadvantages of security tokens
What seems to be a blessing also face might also turn out to be a bane! Is there are no middlemen involved in the transaction of security tokens, there is no strict governance which renders the financial policies ineffective. Whether or not that needs to be a financial institution governing these transactions remains a debate and will remain to be until the near future!
The way forward
They have always been a constant quest for better investments both for investors and for companies. Since security tokens open up a totally new Avenue into this world of investments, security tokens are all set to be the investment method of the Future point with the right garnish of governance and with investors becoming more aware of the security token, the future has already started!
