IS FUTURE OF ICO THREATENED BY SECURITY TOKENS? Share your view with us.
UTILITY TOKENS vs SECURITY TOKEN
Introduction
This year we've witnessed enormous drop in price of pretty much every single crypto on the market. Caused mostly by lack of regulations and growing distrust. Currently hardly anyone want to invest in any new ICO. Lack of trust and fear are putting off investors and it doesn't seem that this trend will change anytime soon.
At the same time Security Tokens are growing slowly in popularity as many believe that STO will be future of cryptocurrencies. Will STO eventually kill demand for any upcoming ICO, causing currently existing project and ICO to collapse even more?
| We in @creativeblue would like to know what's your view on this particular topic. And if you're not aware what Security Tokens are and how are they different from ICO then I would strongly recommend to get familiar with this issue. |  |
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Today @focygray is sharing with us his knowledge and explain what are the differences between those two. STO vs ICO.
ENJOY READING :)
NEW ERA OF TRADING ASSETS
Since the discovering of the bitcoin and other cryptos, the blockchain has experienced a massive improvement in the development of decentralized technologies that seems promising to investors. Not only does these technologies removed the barriers of middle man involvement in trading and other financial transactions, they've also introduced a new era of storing traditional assets as digital assets using the blockchain consensus protocols to secure and remove a third party barriers. However, despite this promising future of cryptocurrencies and digitalizing of traditional assets, it is expedient to look before you loop.
On this article, I will try my possible best to outline some important things you need to know before you invest in digital assets.
Before now, Bitcoin worth about 0.08 dollars when it was first created. Imagine those who invested in it then would be multi millions of dollars richer now. That is what is motivating a lot of investors in investing in new tokens because they never know if these new tokens might rise to fame someday like the bitcoin did. Nevertheless, it is advice to always know the genuineness of new tokens or new technologies on the blockchain that wish to launch new tokens (ICO, Initial Coin Offering) before you invest in it/them.
In 2017, there were over 500 new tokens launched into the blockchain with different motives and different idealogy. Some managed to come up with tokens that have a promising future that made investors think that someday they might be like the bitcoin. Now, let me tell you the different types of tokens and why you should be careful before you invest.
TYPES OF TOKENS
- Utility tokens
- Equity Tokens and lately, Security Tokens
Equity Tokens are a subcategories of Security tokens so, I will treat it as Strictly Security Tokens.
WHAT ARE UTILITY TOKENS
In a simple sentence, a Utility token is an ICO launched to add value to a technology launched on the blockchain. In other words, a Utility Token is a token use for transactions in a particular tech. According to Josiah Wilmoth,
Utility tokens, often called app coins or user tokens, provide users with future access to a product or service. Through utility token ICOs, startups can raise capital to fund the development of their blockchain projects, and users can purchase future access to that service, sometimes at a discount off the finished product’s sticker price.
This is to point out that the value of a Utility token depends on the success of the technology which it backed. If it is an exchange platform for instance, the token value will rise if there are more participants to the exchange and the token is in high demand vice versa. Or if it is a blockchain gaming platform, it will depends on the demand of the token by the players for it to rise to a better value.
Utility tokens are not designed as investments; however, many people contribute to utility token ICOs with the hope that the value of the tokens will increase as demand for the company’s product or service/technology increases.
WHAT ARE SECURITY TOKENS?
Have you ever bought some shares from a company? What are the process you went through before you became a bonafide share holder of that company? Did you signed a lot of documents to identify you as a holder of part of the company's assets? As a shareholder of a company, does it mean you physically owns a part of the company? This is the old traditional way of becoming a shareholder of a company. Thanks to a new era of cryptocurrencies that has changed the way assets can be own.
We've talked on Utility tokens as tokens that are dependent on the progress of the technology they backed. On the other hand, A Security is a trade-able financial asset that gives owners the right to be a shareholder of a company without physically claiming to own a physical property or claiming actual possession of the company's properties. Companies and other traditional parastatals used this means to raise funds from investors with a promise of a profit in return as form of dividend or interest rates or share of company’s profit in some form or other. When this is done in a cryptographic manner, they are termed Security tokens.
In simpler terms, security tokens are cryptographic tokens that pay dividends, share profits, pay interest or invest in other tokens or assets to generate profits for the token holders. This takes care of the liquidity issues.
Security tokens have to be backed by a tangible asset, like a company’s profits or shares or any financial tradeable asset.
DIFFERENCE BETWEEN UTILITY TOKENS AND SECURITY TOKENS
Simply put, while both Security and utility token prices may fluctuate, the key difference is that Security tokens entitle the holder to ownership rights, while utility tokens function as coupons and do not provide holders with an ownership stake in a company’s platform or another asset.
INVESTING IN SECURITY TOKENS
Now you know the major types of tokens on the blockchain. Utility tokens and Security Tokens. Investing in any of these two is of a personal choice that is based on whether you can wait for the company to make some profits for you to have a share (Security tokens) or a token that can be traded in any exchange with the current exchange rate that is based on the progress of the tech behind it or the increase in demand of the token (Utility tokens). It is more like a Security Token is a long term investment compared to Utility tokens. So be wise and invest properly in the crypto market.
REFERENCES
- https://chainsulting.de/en/security-token-the-next-stage-of-tokenized-economy/
- https://coinsutra.com/security-tokens-vs-utility-tokens/
Author: @focygray
Hope this article help on your understanding about Utility tokens and Security Tokens? Cheers!
If you enjoy his work then drop a comment and rememeber to visit @focygray blog and show your support by following him.
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simple and good article about definition of utility token and security token...
Your wallet memo brought me here. Well written article. There will always be those who want to regulate other people's work to make a buck and hold power and certain kinds of regulatory framework has its benefits too (such as fraud protection). People should be free to invest in whatever they want as long as their investment doesn't violate the NAP (terrorism, theft, assassinations, cyber attacks etc.)
We Already Have A Solution
Look into Komodo Decentralized ICOs. You know how crypo are unstoppable. No government can shut down STEEM/EOS or even something like torrent files. Decntralized ICOs does the same for ICOs. Everything is handled P2P on Komodo network.
Look it up. You'll love it.
Amazing comment @vimukthi
You've mentioned that no gov can shut down STEEM/EOS. And most likely you're right. But they may easily force all major exchanges to remove them from their listings. Or spread some extra FUD which would destroy value of those crypto.
I will also look into Komodo. I found topic related to STO very interesting.
Cheers
Piotr
The governments will have to work with each other and it'll be little tough as many exchanges have established their operations around more crypto-friendly jurisdictions. But since 99.99% volume comes from centralized exchanges, the price would take a massive hit. But DEX will have a great time after that.
Is this a brave new world for the concept of money?
You bet!
(Money = value)
(What is value-able?)
(Work, time, energy, etc.) x (time/energy cost)
Im very sorry for such a late reply @vimukthi
Thank you for being so responsive. Steemit needs people like you.
yours
Piotr
I learn more the to utility token than the security token im really a fan of a coin having value because of its actual use and its ecosystem and that encouraging use and adoption has a direct effect on the value
I think more projects should adopt this economic model and try to create real value and not just speculative value
Thank you for your kind comment @chekohler
I think in current state of legislation and cryptocurrency technology, "the old traditional way of becoming a shareholder of a company" is better because it provides more liquidity and less legal issues than security tokens. However, that may change in near future.
You're right @ropaga
on top of that currently companies launching their ICOs do not need to care about price of their tokens. with STO it will be different, since noone would like to sell ownership to their own business for pennies. right?
Good article, but even utility tokens will likely be treated like commodities by regulators, which means they'll be treated like investments. While they are utilitarian in nature and don't represent stake in a company, they can rise in value based on usage. For that reason, the CFTC is looking at them as commodities, much like gold or silver.
Its quite fascinating how your view about Security Tokens tend to conform with mine and also contradict it at the same time.
I see Security Tokens as a saviour to the cryptosphere because with the pain recent ICOs have inflicted on major investors lately, the STOs seem to be a preferrable relief to it.
We've passed an age where investors will rely on luck and chance to bring them profits as the ICO has done. The investors needs a sense of ownership and that is what the STO brings.
With that said, I can gladly say in no time we'll all be saying RIP ICOs.
Thanks for this wonderful piece @creativeblue
Thank you for your kind comment @mrrpiusz
You're absolutely right. I think more and more people are realizing that ICOs with current lack of regulations is a dead end.
I wonder how many ICOs will be still "standing" in a year time. Will Steem die as well? most likely it will :(
I agree that security tokens have better future compared to utility tokens because security tokens provide ownership to the holder. But the question is as the cryptocurrencies are decentralized, won't someone own 51% security tokens and do whatever he likes? Are they safe?
That is indeed a great question to ask @akdx.
With the traditional stock market risk is pretty much the same, isn't it?
I believe that this is the main reason why the price of STO will be more controlled comparing to ICOs. Right now all parties launching their ICOs do not have to be bothered with the value of their own tokens. With STO it will not be the case.
Thank you for your comment @akdx
Congratulations to the @creativeblue team it's a pleasure to be able to read your articles again!
It is a very interesting topic
You have chosen a very valuable and worthy subject to be explored; again I congratulate you, wishing you the greatest of successes @creativeblue
Thank you @nachomolina for your kind comment :)
Good stuff, @focygray and @creativeblue. You have explained well the difference between the two tokens.
I think going forward we will see more of security tokens than utility ones. In fact, you can say that the utility tokens will still operate but strictly as security tokens - this is obvious from what is happening across the globe. Investors losing millions to fraud ICOs and regulatory bodies like the SEC of the USA taking a tough stance on the ICOs. If these are trends to go by, then we will very soon see physical trading principles being applied to the ICO world. That means security tokens are the best equivalents of the physical shares. Maybe, there will be further improvements to the concept of security tokens but that is the general direction in which the crypto-world will progress. And that is good news, to be honest!
So, thanks for sharing this article!
Im glad @ooivas to learn that you've found this article helpful. @focygray indeed did such a great job preparing it.
I appreciate your valuable comment. Any idea if STEEM in a long run will be still working as a utility token or will they also be forced to follow strict regulations and become a security token?