Security Tokens and Utility Tokens - Find the Difference

Blockchain technology has taken the world on its hand. Everything makes us walking and working faster to compete in the industry. Tokens are just one of the things in that new world. Tokenized securities and utility tokens are used by startups around the world nowadays. But, what is the difference between utility tokens and security tokens after all? We are about to find out.

What are Tokens?
Tokens in the ICO space act as an asset or a unit. They are issued by a certain company. In many cases, tokens are made when a company made and released an Initial Coin Offering (ICO). The basic work is similar to Initial Public Offering (IPO). IPO and ICO have a few differences.

An IPO will allow you to get stock in exchange for your investment. On the other hand, an ICO is where you get a token as the exchange for your investment. There are two main types of tokens in the ICO space such as utility tokens and security tokens. Until today, many people still find it hard to differentiate one another.
  • Security Token
    On the other hand, security tokens are a digital asset that represents the value from another external asset as long as it can be traded. These tokens, however, are subject to the federal laws which also involves the govern securities. Failure to walk along the regulation would lead to unwanted consequences such as penalties and derailment if you have a project.
  • Utility Token
    Utility tokens are user tokens or app coins. These things enable access in the future towards services and products offered by a specific company. Hover, these tokens are not created for investment. An electronic dealer would accept an order for a game that will be issued three months later. A startup could create utility tokens and sell digital cards or coupons for that game while it is still in development.
The most promising feature from security tokens is the ability to provide tokens as the digital representation of a company’s stock shares.

Security Tokens vs. Utility Tokens
As we have mentioned earlier, the intended use and functionalities are the major difference between these two. Security tokens are made as investments. The holders will be awarded dividends in the form of another coin every time the company earns profits in the market. The holders will also get ownership which allows them to be involved in the decision-making process of that company.

Utility tokens, as we have mentioned earlier, are not made for giving the holders to get a certain ability in the decision-making process of a company. The token is only used for interacting with products or services from a company. However, the value of both tokens may get increased if the prices are appreciated in the market.

Bottom Line
Security tokens and utility tokens are two different things in the crypto industry. It is important to be able to distinguish those two. Hopefully, this article could help you to determine what you do next in the world of ICO industry considering it is a new promising investment.

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