by Noah Newfield
Cryptocurrency, Stable Coin, Utility Token, Security Token.
These are the four major digital assets that are available right now. Previous articles have touched upon these topics, but here’s a quick review: Cryptocurrencies are digital assets that function as a store of value for transacting, Stable coins are cryptocurrencies that use algorithms or backing from real-world assets to always stay the same value, Utility Tokens are used to complete certain network activities, and now I’ll break down the features of security tokens.
A security token is an ownership contract that is enforced by the blockchain for a percentage of a real-world asset. This is similar to the way a share of stock represents a portion of a company, with the ownership of a share being enforced by the presiding legal system.
Shares of stock used to be paper certificates backed by the legal system of the country where they were issued. The rise of online brokers in traditional financial markets increased the number of third parties involved but opened up the markets to capital from online investors. Now, proving the ownership of a stock you purchased relies on the security and honesty of third parties such as brokers, clearing houses, financial custodians, the involved countries legal systems, and many others.
With a security token, there is only one party whose honesty and security you must trust, the blockchain. The legal system of the of the blockchain is written in smart contracts. These contracts dictate the rules regarding the transfer and ownership of the asset. These include what rewards you receive, how you receive them, who you are able to transfer the asset to, and all the other aspects of the assets internal guidelines.