Tokens, Securities, Utility Tokens, what does all of this mean? They’re million dollar words that companies around the world are grabbing onto in hope of funding. But what do they mean? What is the difference between a security token and a utility token? What even is a token?
The answer is much simpler than the internet wants you to think. They are simply a new way that companies can raise money or share parts of the company with their community.
What is a token?
A token represents an asset or a utility that the company has and is giving (or selling) to you. Many companies will launch an ICO (initial coin offering) that acts much like a Initial Public Offering. The difference is, in an IPO you are receiving a stock in exchange for investing. In an ICO, you are receiving a token in exchange for investing.
Here’s an example:
Your friend is launching an ICO for his new company Coffee Beans and Coins. His ICO states that for each dollar you invest, you get one Coffee Coin. The Coffee Coin you get after investing is a token and represents a share of his company. Simple, I know.
Where it can get confusing is the difference between security tokens and utility tokens. Regardless of how complicated these topics might seem, they are very simple and easy to understand.
What is a Utility Token?
A utility token is access to a companies product, service, app, etc.
Here is an example:
Your friend has a delivery service called Coffee Beans To-Go. On his app, you can buy coffee beans using his token called CB Token. In this example, the token is used to purchase beans and does not represent an investment in the company. Here, you are using CB tokens in the app to purchase a product.
What is a Security Token?
A security token, while sounding ominous and technical, is not at all. A security token is simply a token that represents investment in a company.
Here is an example:
Your other friend wants to start a doggie daycare but needs investors. His dream is to have a doggie daycare that uses a blockchain to store records of dogs and visitors. In order to raise money, he launches a security token called Good Boys Token. When investors want to support his venture, they invest $1.00 and get one Good Boys Token. Depending on the company, each token may come with voting rights, redemption rights, dividends, etc. Much like a stock comes with specific rights.
Security tokens are relatively new and are just now becoming regulated by the SEC. For more information directly from the SEC, visit https://www.sec.gov/ICO
In conclusion, utility tokens, security tokens, and tokens are simply words used to describe the new and ever changing environment of technology and investing. If you’d like to dive into some great research about new ICOs and cryptocurrency, I’d recommend https://www.smithandcrown.com/.