What is a security token & a utility token?

Although security tokens ("securities tokens") are a type of security, other tokens are not. Utility tokens are the ones most commonly issued at an initial coin offering (ICO). Rather than representing an ownership stake in the actual company, they're more like "golden tickets."

Are security tokens the same as cryptocurrencies?

It is important to note, however, that security tokens are not the same exact thing as cryptocurrencies. Many people make this mistake. Cryptocurrencies such as Bitcoin, Litecoin and Bitcoin Cash run on their own blockchains. Security tokens run on an existing blockchain, meaning that a security token could run on the Ethereum blockchain.

How do security tokens work?

Most companies create security tokens in the same way. A company will issue a security token that represents a claim of ownership in the business. Then they establish a whitelist of crypto wallet addresses of the investors who will be permitted to buy those tokens.

What are the different types of security tokens?

There are three common types of security tokens: equity tokens, debt tokens, and real asset tokens. Equity tokens represent the value of the share issued by a company. Instead of certifying ownership on paper certificates, equity tokens are recorded on the blockchain. Debt tokens represent a debt or a loan.