Whats with Security Tokens?

Hello Steemians,

Welcome to another edition of Jamie's blog, todays topic was inspired by a recent trip back home to the United Kingdom, where an associate and I attended the Security Tokens Realised conference in London.

Scouring the internet a couple of years ago you'll undoubtedly have come across hundreds and thousands of articles regarding blockchain technology, cryptocurrency and Initial Coin Offerings (ICO's). A lot of drama and confusion unfolded among the masses, and rightly so.

For most of us (at least those of us in Northern Europe) we have spent our entire lives believing that banks are trustworthy and that the government wanted the best for us by getting us to trust in banks. Not that we shouldn't trust in banks. I myself, have never been critical of banks, sometimes when I had to transfer small amounts of money from my Scottish bank to a Danish bank account i thought the £10 fee for a £50 transaction was ridiculous, but in the end I accepted it because i believed that it was the fastest method for sending money abroad and it cost money to send this money through a trustworthy, regulated entity.

Then BOOM! Bitcoin showed up and with it talk of a method for cheaper, faster transactions. Bitcoin started a Mexican wave of awareness regarding decentralisation, blockchain technology and a new form of crowdfunding (ICO's). This rapid awareness also came with a lot of opportunistic capitalists, much like the good old "internet bubble", with people taking advantage of the naiveté of a booming new industry. Over the past decade we've seen the boom and potential bust of Initial Coin Offerings in the traditional sense, with the sale of utility tokens.

Fast forward to the present and a new player has joined the game, Security Token Offerings (STO's), which came about with the Securities and Exchange Commission (SEC) deciding to get involved as the realisation that blockchain and crypto was not going away.

So why the hype?

The answer to which is simple enough. Regardless of what anarchists may think, the vast majority of people need and want validation and regulation to trust a network to hop on the bandwagon, and this is what Security Tokens aim to provide.

How do they differ from Utility tokens?

The main difference between Utility tokens and Security tokens is the Howey Test and what is the Howey Test? Well many moons ago in an era far far away, I may be exaggerating how long ago the 1940s are, but never-the-less a debate occurred between the aforementioned SEC and a real estate company called Howey & Co who purchased land and gave investors the option of leasing the land for citrus grove farming. The SEC did not like this as the land was not filed under a securities registration statement contract.

So what are the requirements to pass the Howey Test and be considered a security token in the eyes of the SEC?

Simply put to be considered a security token then the token and the underlying project must meet the below statements:

1. It is an investment of money
2. There is an expectation of profits from the investment
3. The investment of money is in a common enterprise
4. Any profit comes from the efforts of a promoter or third party

So thats Security Tokens! If this is the first you hear about them then I advise you to learn more about them as they are, in my opinion, the next step in tokenisation adoption.

I guess thats all from me, bye for now.

• Jamie

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