There are many different cryptocurrencies on the market and every crypto coin has its own coin or token. Within the crypto world, a distinction is also made between the different tokens that exist. There are security tokens, but also equity tokens, asset tokens, and utility tokens. In this article we want to give you a little bit more insight about the security token.


Coin or Token?


First, let's look at the difference between a token and a coin. A coin is a payment currency, so a payment method. Simple as that. The token, however, has much more options. Apart from a method of payment, tokens can also be proof of ownership of a product or service. The exact definition of a coin or token is determined by the users within the crypto world and not by an authority.


Token and Blockchain


When a crypto has its own Blockchain, we generally speak of a coin. We call crypto coins without a Blockchain a token. Here the difference is as clear as day, however, offers no ultimate definition. There are well-known coins out there that once started out as a token but eventually became a coin. Often because developers built their own blockchain for their token at a later stage of product development, and that’s a good thing!


What are Security Tokens?


A security token is a – surprise, surprise – security that is issued as a token by smart-contract-based stock exchanges and blockchain technology. These tokenized securities can be traded on a regulated crypto asset exchange. These are tradable rights that represent a financial value. You can think of shares, bonds, and options. Securities are usually traded on the stock exchange and the price is subject to normal market forces, also called supply and demand. The idea behind the securities is that they are tokenized. Everything of value must be able to be converted into tradable tokens.


Security token is a broad term and can include all kinds of easily tradable rights that carry a financial value. Security tokens include shares, bonds, options, warrants, futures, and even shares in investment funds. In this sense, security tokens are the same as securities, but they do not exist as a paper certificate, but as a token on a blockchain without unnecessary expensive intermediary parties. Fraud is out of the question with these security tokens. In fact, the benefits are significant in terms of, among other things, cost savings and transparency. Securities such as security tokens are therefore inalienable property of the buyer. This also makes it much easier to raise global capital. It will be able to realize a regulated global p2p capital market where investors can actually exercise ownership of the securities purchased. A security token is a form of crypto-equity and is an inalienable good. It is a crypto asset with certain rights, claims and obligations.


The difference between a utility token and a security token is that the utility token is regulated by the US Securities and Exchange Commission (SEC). For many, this is reason enough to fall under the denominator of utility tokens, because you have to take into account fewer rules. You should pay attention to this if you want to invest in security tokens.


The Value of Securities


What is the value of securities in the form of tokens? Well, you don't have to go to a bank or investment fund to buy tokens; you simply go to a crypto fair or broker. The advantage of this is the obvious economy than a bank would give, because there is also no notary involved. What is important for the value of the Security tokens is the profit distribution of a company. Does the company make a profit? Then you are entitled to part of it. The tokens also give you a say. Your tokens represent a vote.


Current securities trading is in fact outdated and not transparent. Direct ownership of the purchased securities is no longer exercised. Everything goes through intermediary parties such as brokers and organizations. Such organizations now try to partner with blockchain developers to ultimately be able to offer a better settlement and accounting system for the securities trade through this technology. It is to be expected that many, especially smaller, startups will avoid the old restrictive and expensive financial structures. They will choose to issue their own securities on a blockchain without (expensive) intermediaries.


It is not entirely ruled out that companies will choose the safest blockchain: Bitcoin. This can be based on side chain technology using various existing platforms. Nevertheless, Ethereum has a significant lead over all blockchain platforms and it is therefore obvious that most companies will initially opt to launch a security token on Ethereum using the ERC20 protocol.