Tokens and its Classifications
Cryptocurrency is spreading to the knook and corner of today’s digita world. As there are more and more beneficial inventions and technologies enters into the crypto world , makes cryptocurrency more viral. Cryptocurrency is a digital asset prefered by many individuals to trade online to meet high profit.
Cryprto Tokens are one which made recent entry and created a tough situation for cryptocurrency.
Tokens – What is it ??
It is very difficult to define the term token as it has many forms and features .Thus token is one which can do one or more of the following functions.
A currency, used as a payment system between participants
A digital asset or right
A share in a company or project
A reward for contributors
Payment for using a system/product/service
Types of Crypto Token :
The crypto tokens are classified into
Equity Tokens :
An equity token is one which holds the share of an individual in the underlying company . This share or ownership informations and records are stored in a public ledger or database using blockchain technology.
Utility Tokens :
An utility token is a digital paper that contains informations about the product and services that belongs to an individual . Utility tokens are the one provided to investors in ICO , which allows them to claim for product/service after the launch .
Tokens that doesnot pass Howey’s test are termed as utility tokens.
Howey’s Test :
Howey’s test asks two questions for which the tokens should answer “YES” .Those answers yes for both query will be considered as security tokens .The two questions are I) Is the token being sold as an investment? and II) Is there is a person upon whom investors rely?
Only those tokens that replies yes are the one that passes Howey’s test.
Security Tokens :
Security token is the one which passes the Howey’s test . In other words security tokens are one that comprises of security agreement and which allows investors to claim for profit/share .
Security Token Offering :
Security token offering is a crowdfunding process , which is a new form of ICO .The main difference between ICO and STO , is that ICO provides utility token ,whereas STO provides security token.
To know in detail about Security Token Offerings concept , checkout this blog : Security Token Offerings Services & Development Company