It’s reported that 34 million adults own cryptocurrency. Seeing as it offers fast transaction speeds with low transaction costs, there’s no wonder more and more people are taking an interest in blockchain technology.
Security tokens provide fractional ownership, allowing companies to generate funds from a wide range of investors. But what are security tokens, and how do they compare to cryptocurrency?
This article explains how security tokens work, so keep reading to learn more about this regulated security asset.
What Are Security Tokens?
Security tokens are digital assets representing rights of transfer or other types of ownership, from either an asset or bundle of assets. The value of these assets is then converted into a token. They’re a digital type of investment, including stocks and bonds.
It’s important to understand that you can tokenize anything. For example, you could tokenize your car’s VIN, along with your name, address, and information used to register the vehicle.
From there, your motor vehicle agency would use what’s known as a blockchain interface program to enter the provided information into their blockchain. The result is an ownership token and your car’s registration.
Security tokens are similar. Any company can input the meaning behind a token, offering the token as a type of exchange or investment platform with prospective investors. Ownership of the security token is stored on the blockchain.
The majority of security token platforms rely on Ethereum ERC 2.0 or Tezos’ FA1.2 or Ethereum ERC 2.0.
Security Tokens vs Cryptocurrencies
Cryptocurrencies and security tokens are almost the same, as both are created on a blockchain. Although they’re both tokens, their purpose is what sets them apart, along with their intended and actual use.
Cryptocurrency is used as a payment method or type of currency. However, security tokens are used the same way you’d use stock, certificates, bonds, and other types of investments.
Keep in mind that security tokens aren’t available for any retail investors looking to invest in public stock, as well as exchanges of cryptocurrency.
If you’re looking to learn more about digital securities, you can read about the digital future here.
Ethereum: Security Token or Not?
Ethereum is not considered a security token. The intention behind Ethereum is to use it for transaction fees, payable within the Ethereum Virtual Machine.
If you own Ethereum, you can place it at stake if you wish to become a network validator. It’s not guaranteed, but if you’re granted this status, you can potentially earn more Ethereum down the road.
It’s important to understand that security tokens stand for transfer of value, rights of ownership, or a promise of returns. These items must be tokenized on a blockchain.
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