There are many different types of tokens. But what is a security token? The name of this token may create some clarity, but it raises just as many questions. That is why in this article we explain what a security token is and its advantages, how it works and what the difference is with other tokens.
Tokens and crypto coins
Often cryptocurrencies are confused with tokens. Understandable in itself, but there is a difference between these two terms. Cryptocurrency is something that represents a certain value and runs separately from the blockchain .
A token also represents a value, but runs on the blockchain. The value a token represents can be anything. That’s not always money. For example, it can also be a voting right (with Proof-of-Delegate, for example). But it can also contain the value of a physical item.
What is a security token?
As mentioned, a token therefore represents a certain value. In the case of security tokens, the token represents an asset or debt. You may have heard of tokenizen. Tokenizen means that an asset or debt is converted into a token. And we call such a token a security token.
This way you can tokenize the value of a painting. You then sell the tokens, so that every owner of the token also partly owns the painting. Should the painting ever be sold, the proceeds will be divided among the owners of the tokens.
The benefits of security tokens
Security tokens bring many advantages. So let’s take a look at all the benefits of the security tokens. We also explain what these advantages mean in practice.
Theft is a thing of the past
Security tokens cannot be stolen. That is a big advantage compared to, for example, cryptocoins and physical money. Both of these can be stolen. For example, a criminal can take crypto from your wallet when he has your private key in his possession.
The token is a representation of the value. When it is stolen, it is of no use to the criminal. It does not represent any value to him, because he is not on the whitelist.
If you want to invest money, this is sometimes not so easy. Of course you can easily and quickly buy a share. Often also at low cost. But if you want to invest in a house, for example, you will have to put down a lot of money for this. So that is not for everyone.
However, security tokens can make it easier to invest. For example, a house can be tokenized. That means, for example, that the house is converted into 1000 tokens. If the house is worth 400,000 euros, each token costs 400 euros. So you can decide to buy 2 tokens for 800 euros. You are then for 1/500 part of the house.
When the house is then rented out, you will receive 1/500 of the proceeds each month. That is about 3 euros per month when the rent is 1,500 euros.
Trade with foreign countries becomes easier
With security tokens it also becomes a lot easier to trade with foreign countries. Security tokens are universal and there is no national currency attached to them. For example, to continue with the above example, you could also invest in houses in, for example, China or America. Normally you would have to arrange a lot of paperwork for this and put down a lot of money. Security tokens make this a lot easier.
By using security tokens you lose a lot of miner costs. Normally, for example, you would still have to incur costs to the intermediary. This can be, for example, a broker, but also a broker when it comes to investments in real estate.
When you use security tokens, you no longer need an intermediary. This ensures that you spend less money on intermediaries. But you can also perform a certain transaction much faster.
Collecting money just got easier
Security tokens are also very beneficial for companies. It is a lot easier for companies to find investors when they use security tokens. It attracts a very different and wider audience. A public that previously did not have the money to invest in companies can now. This makes much more possible for companies, so that they can grow much faster and better.
It also creates new opportunities for people. They can invest their money and then earn money with it. So it is a win-win situation for both parties.
The difference between security and other tokens
It is logical that you ask yourself what the difference is between security tokens and all other tokens. The main difference is that security tokens have to comply with more laws and regulations than other tokens. This is because there is much more value attached to a security token.
Maybe you have some equity tokens and debt tokens. These are both security tokens. Equity tokens are tokens that represent the value of an asset, while debt tokens represent the value of a debt. But both are forming security tokens.
In short, security tokens are tokens that represent the value of assets (equity tokens) or debts (debt tokens). However, it is not the case that the token itself has a certain value. All the token does is represent a value.
The biggest advantages are that it becomes easier to invest in, for example, real estate or companies. This also makes it much easier for people to earn money with their investments at a lower cost. This provides benefits for both consumers and companies. It is also easier to make these investments abroad. Something that normally requires a lot of money and paperwork.
Thanh Lanh Tran(1989) is Chief Editor from BitcoinUSD.com