When it comes to cryptocurrencies and their marketing, tokens are increasingly used as an investment and a form of exchange. In order to enter this world of digital money, you have to be aware of the way tokens work and know what their variations are. Before knowing what a Token is, it is convenient to have knowledge about what a cryptocurrency is: a cryptocurrency is a kind of “digital asset” that is used as a medium of commercial exchange, under a process of encryption that gives it transparency and security in all its procedures.

What is a Token?

A Token is also a digital asset and is built on the Blockchain technology of an existing cryptocurrency. The Token is born from an initial offer of a currency, which is known as ICO (Initial Coin Offering or now IEO), as a new form of financing, through which a Startup can acquire the capital necessary to develop a project.

Token Types

In general, Token are created by a third-party Blockchain platform, such as Ethereum and Tron, which are some platforms that allow this modality from the creation of so-called “smart contracts” quickly and easily. The first Tokens that were known on the Blockchain were Bitcoins, which were created under the concept of Colored Coins, however, its heyday occurred from the moment that Ethereum created the ERC-20 standard, representing the first step for birth from many other Tokens. There are 3 types of Tokens: Security Token, Utility Token and Equity Token. In this article we will talk about the Security Token.

Security Token

A Security Token is a type of physical device that is used to access a resource that is electronically restricted. This Token is used as a complement or instead of the password, that is, it acts as a “key” to be able to access something, it also represents a percentage of some asset in the real world (the process of digitizing said asset is called tokenization), for example, a business that has a million shares when it performs the process of “tokenizing” those shares happens to have a million Security Tokens, that is, if a Security Token is purchased, I would be buying a share of that business. In this way, nowadays you can tokenize anything: stocks, bonds, vehicles, properties, etc.

Security tokens must adhere to the laws in the jurisdiction in which those assets are represented, this means that it is an asset “linked” to financial securities, they take the value of the company that issues them and gives their endorsement, but they do not necessarily represent a part of the company in the same way as a financial action.

Advantages of Security Tokens

Some advantages of Security Tokens is that they are digitized by means of Blockchain technology, which allows operating time to be reduced and moving in a transparent environment. Because they are considered assets, they offer their owners the opportunity to make a profit due to the growth of the company, as they are backed by something tangible (such as the assets of the company and the benefits of the company as such) are considered as an investment to pertinent legal effects.

What do you think about this topic? Did you know about the importance of security tokens?

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