What is a Security Token? Everything You Need to Know

What is a Security Token? Everything You Need to Know

2017 saw the rise of initial coin offerings. These ICOs raised over 1.2 billion dollars, putting them ahead of early-stage venture capital funding.

Much of this funding took place in unregulated territories. Governments are still working to catch up to cryptocurrency trading, leaving many investors in doubt. It can be difficult to come by information due to the questions facing the industry, which is why we’ve decided to help potential investors understand security tokens.

What is a security token? Read on to find out more information!

What Is A Security Token? Tokens Are Hard To Define

Tokens come in a variety of forms and functions, making them hard to define with certainty. There are four general things that a token represents:

  • An augur represents a user’s reputation in a system
  • A tether is a deposit in US dollars
  • The quantity of files saved is a filecoin
  • A balance in an internal currency system is a bitcoin

These four representations create¬†an array of functions that a token serves. A token can serve the function of currency when used in an interaction between two parties. It’s also a digital asset or share in a company. It can even be a means of accounting.

Most of the time, tokens fulfill multiple needs instead of only one. This versatility is a major reason why tokens are gaining in popularity online.

In short, security tokens are what happens when a crypto token gets its value from a tradable asset. It becomes subject to federal regulations at that point.

Benefits Of Security Tokens

One of the primary concerns when it comes to cryptocurrency is a lack of regulation. Security tokens are the answer.

The assets divided up by tokens already exist in the traditional market. Many of the old ICO markets find themselves undercut by blockchain projects that tokenize the equity rights of pre-IPO companies.

Companies using utility tokens to raise capital have been able to skirt federal regulations for years. After the rough year in crypto markets, however, it’s risky to offer an ICO. Most companies now take the funds and cash them out immediately, making the claim that ICO participants are “investors” dubious.

The crash and subsequent rise of companies cashing out of the market immediately following ICOs made it necessary for the traditional market and blockchain to come closer together. Security tokens are the natural bridge linking these two worlds.

The hybrid model benefits users of both. It creates a transparent system in which both parties know that they’re finances are secure. The crypto markets benefit from trust. People will invest in crypto markets more knowing that their money is secure. Large corporations that use the power of the blockchain can get their funding faster and more securely than with traditional methods.

Need More Information On CryptoCurrency?

Finding non-biased information on the crypto-market is tough. Even after the 2017/ early 2018 explosion of Bitcoin, the general public still has a limited understanding of how the system works.

If you want to learn more our blog will teach you everything about cryptocurrency, from wallets to buying Bitcoin. You’ll get the answers to questions like “what is a security token?” to “where can I buy Litecoin?” Don’t wait until the market explodes again. Get the information you need, buy the dip, and get in now!

Ledger Nano S - The secure hardware wallet

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