Understanding Tokens
These are
issued when a company launches an Initial Coin Offering (ICO), which is more or
less the same as the Initial Public Offering (IPO). The main difference between
an IPO and an ICO is that in an IPO, you receive stock in exchange for the
investment you will make, whereas in an ICO, you will receive a token in
exchange for your investment. Tokens can be redeemed to access the product or
service of a company in the future.
Security tokens:
Security
tokens (or digital securities, as they’re sometimes called) are digital
representations of an asset such as equity, fixed income, real estate,
investment fund shares, commodities, and structured products that are traded
and held on a blockchain (a distributed ledger). What makes these assets
‘securities’ is that they’re regulated, with governing bodies across the world
dictating how they can be issued, managed, and exchanged. By leveraging
blockchain technology, security tokens allow for many traditionally cumbersome
and highly-manual processes to be automated and provide a golden source of
truth that all parties can depend on. In short, security tokens combine the
speed and ease of blockchain with the strong legal protection of traditional securities.
Utility
tokens:
Utility
tokens are user tokens or app coins. This is a token that is given out during
crowd sales as a project executes an ICO. When a company creates a utility
token, it means that it is essentially creating a form of a digital coupon that
can be redeemed in the future for discounted fees or special access to a
product or service. Unlike security tokens, utility tokens are not used as
investments as they can be exempted from the federal laws governing securities
if they are properly set up. Some of the Examples of utility tokens are
Filecoin, Siacoin, Civic, etc. Utility tokens are powerful as they have many
different use cases and can serve many roles. They can allow seamless
transactions over a blockchain, allow payments for decentralized services, fund
project developments, and much more.
Key Points
Security tokens as well as utility tokens based on blockchain technology are expected to play an important role in the future of the digitization of capital markets. However, currently, there is little consensus on the regulation of cryptographic tokens of any kind.
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