A Short Guide to Security Tokens
ICOs are growing up. The time of Wild West in this area is already gone, and we see regulations starting to catch up with the changes. It brings in market regulations required for cryptographic tokens, aimed at bringing back the credibility.
The security tokens open ways to bridge the gap between blockchain technology and traditional legacy finance as both sides can benefit a lot from this.
Imagine Initial Public Offering of stock shares for a moment - it creates shares entitling the investors to company dividends.
It makes those shares a security: you can invest your money in a common enterprise with an expectation of profits from the efforts of others.
Now swap the traditional share with a cryptographic token entitling you to the same benefits.
It serves the same functions, just in another medium, and is subject to the same regulations as securities. That’s what we call a security token.
Security tokens in the US
The term is strictly connected with the US regulations - they have to comply to federal securities regulations. Failure to abide by these regulations results in penalties, and can be a serious obstacle for your project.
The security tokens are considered to be safer to invest than the others because of the strict regulations.
As it is widely discussed, blockchain can remove the need for middlemen in finance. It reduces fees, speeds up the execution, and can open ways to connect lots of investors and projects around the world. The tokens can be easily liquidated through trading platforms.
But the biggest innovation are Smart Contracts - the aspect that can potentially reduce lawyer service, and make self-fulfilling contracts, such as automated dividends being paid to you on a specific date upon meeting a certain condition.
Regulations are often perceived by the blockchain community as dangerous to the freedom and independence of blockchain. However, they give us a way to protect investors from frauds and open new ways to develop the technology further.
The regulations open up the potential to leverage the power of blockchains and smart contracts - to build cost-effective, secure & fast solutions.
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