What is Security and Utility tokens and what is their difference

Beginners often can not understand what distinguishes classical crypto currency from tokens produced by companies, and what tokens are.

In recent news, we reported that the US Securities and Exchange Commission (SEC) sent numerous requests to the company, which were conducted by ICO. Many, not having understood the issue, regarded it as an attack on the world of blockade and crypto-currencies. Also, this had a negative effect on the course of the Crypto-currency: on the days when news of the SEC came in, a negative was seen in the market.

But is the SEC commission really up against the crypto currency, or is it just trying to put things right in this emerging market, where the laws of the "wild west" reign at the moment. This is exactly what we are going to understand in this article

Crypto currency and tokens – the difference

Crypto currency call means of payment, the creation and use of which is based on cryptographic protocols. Cryptocurrency It works on the basis of blocking technology, which is a chain of blocks, the data in which it is impossible to forge or change. The database of transactions and purses is stored with the network participants. There is no single server.

Tokens name the currency issued by the company. They are released centrally, without mining. Before the ICO, a startup produces a number of tokens for their own needs. Investors interested in the project can invest their money in these tokens. Information about the investment in the project will be recorded in the block and protected by a cryptographic protocol. In this sense, coins and tokens are similar.

What is still wrong with the tokens and why they attracted the attention of the SEC. The fact is that there are several types of tokens

Types of tokens

There are two types of tokens

Utility(useful) a token – a coin, the internal digital currency of the company, at purchase of which some advantages are given at use of products of this company. Those. An attachment is necessary to simplify the use of the service, or it is simply the operating conditions of this product. The simplest example of NOT from the world of blockades is the internal game currency.

Security(investment) token is a digital asset that is acquired for profit in the future.

Difference Security and Utility

Commission SEC in 2017 year decided that Security Tokens fall under the regulation, which is valid for standard shares, i.e. the release of tokens must be accompanied by mandatory registration.

There is a test by Howie, by which you can test yourself what type of token you are getting. If in all questions the answer is "yes" – then you buy security token

Does the token buyer expect revenue?
The main function is an attachment?
Does the token holder make a profit from a third party?
Does the money from the sale of an asset go into the company?

In turn, utility tokens are purchased exclusively for internal payments, exchange between users, fees for the provided functionality and so on. That is, users do not try to get any profit from the sale of these tokens.

Why do the SEC have questions to ICO

After the received instructions, SEC exchanges limit the purchase of tokens. This is due to the fact that in the future there may be negative legislative norms regarding security tokens or at least issues regarding companies that issued these tokens

This is what happened not so long ago, because security tokens should be officially registered, while the SEC still no ICO registered.

Companies that organize ICO, in turn, have found themselves in a difficult situation when their token is essentially utility, but they claim it as security for large investments. That is, investors who may not even use the product / service of this company will acquire a token only for further resale on the exchange.

On the other hand, ICO companies indicate that any utility token can also be exchanged between users for real money, but, however, this will no longer be a transaction through the exchange.

Anyway, the SEC's questions are well-grounded and we believe that in the future this will lead to some order in this market. In the end, only after the 2017 year was too much failure and frankly fraudulent ICO, and we think this will be able to protect users from investing in dangerous projects.

I would like to note that not all projects want their security token to be recognized as security, because it obliges them to register as issuers and pay taxes.

Author: Damir Shaymardanov, Analyst Freedman Club Crypto News
Image from Fotolia

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