Could Security Tokens Be Bigger than Bitcoin?
Bitcoin is the world’s most recognizable encrypted, digital cryptocurrency coin; however, Bitcoin is just one of over 4,000 different types. The top five largest, by market cap, are: Bitcoin (BTC), Ethereum (ETH), Ripple (XRP), Bitcoin Cash (BCH) and Cardano (ADA). Combined, these five are currently worth $250 Billion USD. Bitcoin makes up over half of this amount, at $138 Billion. A coin is simply a means of storing value, making a payment or transfer of value from one party to another – similar to fiat currency, except they are not backed by any government.
Here is a listing of the top 100 Richest Bitcoin Addresses: https://bitinfocharts.com/top-100-richest-bitcoin-addresses.html
Cryptocurrency tokens are similar, but have some differences compared to coins. Tokens provide a wider functionary than coins. Coins are individual cryptocurrencies based on their own blockchain. Tokens are built and hosted on existing blockchains and are digital units of value released by an organization. Tokens represent digital assets and are able to be traded for everything from physical items to voting rights. Four of the top five tokens are on the Ethereum platform. The top five largest tokens, by market cap, are: Tether, UNUS SED LEO, Huobi Token, Chainlink and Maker. These have a combined market value of approximately $7 Billion USD.
Tokens can be split into two groups: utility tokens and security tokens.
Utility tokens are backed by a specific project. In most cases, when someone invests in a utility token, they receive a specific benefit in return. For example, FunFair Technologies created their FunFair token for use in their online casino gaming platform. Their goal was to create a trusted, fair and decentralized online platform to use a single ‘currency’ for all activity regardless of the country the user is located. The FunFair tokens are anonymously owned, but all transactions are registered in the blockchain. Each of these tokens can be tracked. Another example of a utility token is Timicoin. These tokens allow access to the blockchain-based TimiHealth project, the first decentralized Healthcare Data Marketplace, which is used to gather and transfer health data and statistics. In addition to allowing health care professionals access to sensitive patient data using the marketplace, patients can also share their data, anonymously, and get paid.
In contrast, a security token does not have a specific utility or benefit to the owner/investor. The reason a person would buy security tokens is to represent a share (partial ownership) in a company or asset, such as: real estate, funds, stocks or even artwork. These tokens are sometimes referred to as equity tokens. Another major difference is that security tokens are more regulated by the government than utility tokens. From an investment point of view, regulations are a benefit. Some security tokens even offer dividend payouts.
Since the security tokens are tied to the equity of a company or asset, early investors may choose to invest in security token offerings (STO) instead of investing in a private placement. STOs are very cost effective, since the intermediaries (investment banks) are eliminated. This leaves more money available to purchase the investment, instead of going to management fees.
Like trading cryptocurrencies, the KYC and AML checks are automated, so it is much faster to create a new account and purchase an STO instead of purchasing private placement shares from an investment bank. The investor still needs to be a credited investor. STOs are also available to trade 24/7 on most online exchanges.
In the future, STOs could be more popular than cryptocurrencies or even publicly traded stocks. This is due to the wide variety of assets the token could represent. This can give average investors the ability to own a portion of a famous piece of artwork, real estate, sports collectables, coins, rare metals or virtually any physical object with proven value. The possibilities are limitless. As long as there are owners willing to tokenize assets, investors can use STOs as another investment option that were previously only available to ultra-wealthy individuals, organizations, corporations and governments.
Sources:
https://www.investopedia.com/terms/b/blockchain.asp
https://www.ccn.com/andy-warhols-multi-million-dollar-painting-tokenized-and-sold-on-blockchain/
https://token.security/stn/article/directory/security-token-exchanges-the-complete-list/
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