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How to differentiate between a utility token and a security token?

ethereum token
Blockchain has given power to many concepts and came up with many concepts like decentralization, Smart contracts, tokenization etc. Let us see the use and impact of tokens and how different a utility token is from the security token.

Blockchain has emerged as a liberating technology which gives the power in hands of the people who use it. It cuts off the mediators, gives a transparent outlook, promotes decentralization, tokenization, smart contracts etc. Such technologies are very important for the sake of the progress of the world economies. Blockchain technology is one such technology which is aiming to disrupt the customary methods of every sector in the economy. It is due to its flexibility, adaptability along with various cool features that it can be molded into various utilization. Lets see the difference between a security token and a utility token.

 

Blockchain comes with the power of tokens:

Revamping organizations and their methodologies are always essential for the progress. Tokens are some power packed feature which enables to draft mechanism for the company’s workflow, designed for certain use cases. In general, tokens are stores of value which can be used to store specific functionalities which can be used for that specific reason, systems or condition. Categorized into various types, tokens are mostly Security tokens and the other one are Utility tokens.

 

What is a security token?

Standing between the organization and the blockchain network, security tokens helps both of them. The major difference between them is that of regulations. Utility tokens lack regulations. Moreover, they are more complex than the utility tokens. They are mostly used and beneficial to the contract while investments. They are considered in the hope of profits in the future.

 

What is a utility token?

Utility tokens act as an access to a service for the future. This is similar to a gift card.

 

Which one is better?

It is very simple and inexpensive to issue security tokens under frameworks such as Regulation D, Regulation S and Regulation A+. They can decrease the risks as compared to utility tokens and IPO. In case, a certain company accepts a security token, it is similar to an investment which will provide the investors few advantages such as profit sharing. When talking about the utility tokens, when are used in ICOs they are mainly used for the progress of projects with the help of the contributions gained during the ICOs. They are different from the security token since they are not utilized for investment purpose. The prices of utility tokens may fluctuate greatly. Each token has its own purpose, it’s time that some precise use of each token should be specified more accurately.

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Written by Coinnounce Team

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