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What is a Security Token? Everything to Know About Security Tokens

The cryptocurrencies we are most used to dealing with are classified as utility tokens -- whether they’re for using a service, making a payment or offsetting a transaction fee on your favorite crypto exchange.

However, in more recent months, we have seen a rise in popularity of what is known as the ‘security token’, or a token that derives its value from an external, tradable asset.

A utility token, like Bitcoin and Ethereum, operates as a primary function of the network and often represent rights to network usage or opportunities to take advantage of the network by those who are holding these tokens.

A security token, on the other hand, represents an electronically wrapped stake or share in a private interest or company -- and can extend to assets such as real estates, trusts, LLC, fine art, and so on. Often, security tokens give holders entitlement to a form of equity or ownership of a specific (fractional or whole) asset, as well as the expectation of profit through revenues, dividends or favorable price movements. In other words, security tokens are an investment contract similar to those of traditional financial instruments.

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