Utility Token & Security Token
The conceptual difference between the two types of tokens
MileVerse is a mileage integration payment platform, that applies blockchain technology to build an integrated ecosystem, that benefits everyone, ranging from corporations and customers up to affiliated stores.
Hi there! If you are new to the crypto space then you must be overwhelmed by the sheer volume of terminology. For the uninitiated, terms like cryptocurrency, tokens and coins, and most importantly, “security & utility tokens” should create a huge pain in the brain for someone, who is not familiar with them. By the way, did you know, that there are two different types of tokens? Well, in this post, we will make sure to distinguish the basic difference between utility and security tokens!
Utility Token
It may sound obvious, but a utility token is simply a token, that has its own utility. It is a token designed to access various services within the Dapp and used mostly as a reward unit provided to the producers, and also as a payment unit by the customers to obtain goods/ services. Most of the cryptocurrencies are designed as utility tokens. Although the good point about the utility tokens is that they increase in value as demand increases, the downside of the utility tokens is that investors are not protected because there is no legislation to regulate them.
Security Token
Security tokens are similar to the stocks to a certain extent, that can be found in the stock market, hence they are called “Security Tokens”. A security token is a cryptocurrency issued by the company as an investment, and when the value of the token increases, dividends are paid out, and the more you own tokens, the more authority you have over the project’s governance. In the future, when the stock companies will eventually enter the blockchain and tokenized their shares, they will all be seen as security tokens.
The Future of Security Tokens
Unlike common stocks, most of the utility tokens do not provide special rights to investors other than the prospective usage of the tokens in the platform. And they’re also not protected against the loss of assets, that may occur due to the hacking or restoration. In fact, U.S-based financial regulator, SEC has recently announced that it would treat all coins that distribute dividend payments, as a security token. This is a positive opinion, which means that if the regulatory problem of the security token is resolved in the future, the security token will lead the future crypto market.
