The decentralised nature of blockchain technology has revolutionised several industries with consistent adoption across markets. The cryptocurrency industry, now a decade old, is integral in the technology and has been a major vehicle of blockchain adoption.
Bitcoin was launched in 2019, bringing the world the first “cryptocurrency”. Since then, we’ve seen the emergence of altcoins, Initial Coin Offerings (ICOs), non-fungible tokens (NFTs) and other branched-off cryptocurrencies. These are also referred to as “tokens”.
What are digital tokens?
Tokens are digital assets that are generated on a blockchain. They represent a unit of value that can be traded, used, or spent. The most common use case for tokens is to raise funds for early-stage projects.
These digital assets are the transaction units used on the blockchain. Tokens can be classified into two broad categories:
- Security tokens, and
- Utility tokens.
The digital currency ecosystem is booming and we are seeing an influx of new cryptocurrencies daily. With so many choices, it can be difficult to determine which token is right for you.
What are security tokens?
Security tokens are digital assets that are backed by real-world assets. They provide investors with a claim on the underlying asset, such as equity in a company, real estate, or other physical assets. security tokens are subject to federal security regulations. Many in the crypto community believe that security tokens are powering adoption.
Security tokens are those that pass the Howey Test, meaning they meet the criteria to be considered a security under United States law. This classification comes with a set of regulations that must be followed in order for a legal Security Token Offering (STO). Some of these regulations include registering the STO with the SEC and conducting due diligence on all investors.
The Howey Test was developed in 1946 and comes from a Supreme Court case, SEC v. W.J. Howey Co. In order for an asset to be classified…
