Blockchain Differences Between Security Tokens and Utilities Tokens

Blockchain Differences Between Security Tokens and Utilities Tokens

Two key types of tokens are responsible for the success of blockchains: security tokens and utility tokens.
Tokens | https://www.sciencedirect.com/science/article/pii/S0007681318300375 | in a block chain are units of value and exchange, and can be transferred between users without the involvement of a central authority. 
One type of token is the utility token | https://hackernoon.com/security-tokens-the-new-blockchain-era-4f0c79830d2a |, which functions as the coin or currency of a blockchain project. A blockchain will create a utility token to raise money for itself in an initial coin offering (ICO), in which investors will pay money for utility coins. 
What does one do with a digital wallet full of utility tokens? The short answer is that these utility tokens or coins may be valuable for a few main reasons. 
For one thing, utility tokens may grant rights | https://blockgeeks.com/guides/security-tokens/ | within the ecosystem of the blockchain itself. More coins, more voting rights regarding which projects the blockchain should fund, for example. 
People can also use utility tokens to trade value within the ecosystem of the blockchain itself, creating internal economies. Another, somewhat related use of utility tokens is to pay tolls to gain access to functionality. Tokens can even be used to enrich functionality. 
Utility tokens can also, of course, be used as digital currency, crypto-currency, and as earnings.
This model has many strengths, but one problem is a lack of institutional legitimacy. After all, the value of the tokens is relative to the platform itself and what people are willing to pay to gain access.  
This is where security tokens come in. Unlike utility tokens, the value of a security token is derived | https://strategiccoin.com/ico-101-utility-tokens-vs-security-tokens/ | from an external, tradable asset, and is subject to securities regulations accordingly. 
Security tokens are also known as equity tokens | https://hackernoon.com/security-tokens-the-new-blockchain-era-4f0c79830d2a |, because they command a share in the company itself. This does mean that they are much more regulated than utility tokens, but the advantage of that is fundamentally that they are more trustworthy. 
What security tokens accomplish is a better way in which to eliminate a middleman from a transaction. This will lead to lower fees and faster processing, and more investors.
Middlemen add fees and processing times to transactions because they must handle risk and uncertainty. By removing the need for middlemen altogether, security tokens | https://medium.com/@apompliano/the-official-guide-to-tokenized-securities-44e8342bb24f | will produce a world of faster, cheaper, and fundamentally better transactions.  
Because security tokens are subject to regulation | https://hackernoon.com/security-tokens-the-new-blockchain-era-4f0c79830d2a | by the Securities and Exchange Commission (SEC), there will be fewer concerns about buying them. This is expected to bring an investment bonanza, as people who were previously very leery of investing in cryptocurrency decide that it is now much safer to do so. 
With the rise of blockchain technology, many new possibilities are on the horizons. Utility tokens have played an important role as the workhorses of blockchains for a while, and doubtless will continue to do so. However, the rise of security tokens points toward an important new blockchain-based world of possibilities. 
 
Sources:
https://www.sciencedirect.com/science/article/pii/S0007681318300375 | https://www.sciencedirect.com/science/article/pii/S0007681318300375 | 
https://hackernoon.com/security-tokens-the-new-blockchain-era-4f0c79830d2a | https://hackernoon.com/security-tokens-the-new-blockchain-era-4f0c79830d2a | 
https://strategiccoin.com/ico-101-utility-tokens-vs-security-tokens/ | https://strategiccoin.com/ico-101-utility-tokens-vs-security-tokens/ | 
https://medium.com/@apompliano/the-official-guide-to-tokenized-securities-44e8342bb24f | https://medium.com/@apompliano/the-official-guide-to-tokenized-securities-44e8342bb24f | 
 

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