The Year of the Security Token

The Year of the Security Token

The Year of the Security Token

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Blockchain is 1 of the fastest growing ideas in recent history, and its revolutionary decentralized model is being appropriated by industries far and wide.

Its popularity began with Bitcoin, the cryptocurrency, which is now almost 10 years old.

Bitcoin was the seminal cryptocurrency back when it was just a currency.

Currently, Bitcoin is trading at: 9,334.2549, +295.10, or +3.26%, as of 1:56a BST,  the market is open

The term was used to describe digital fiat (paper) money alternatives like Bitcoin, Litecoin, and Ripple, but now it covers literally any ‘coin’ that is transferrable via blockchain.

Part of this shift is due to the waning novelty of coins that mimic Paper money.

The market now has so many other choices delivering Bitcoin’s capabilities and more, that it has come up with new terms to help illustrate the differences between them all.

The rise of ICOs means that there are now thousands of different cryptocurrencies out there, with ICO-generated coins commonly referred to as ‘tokens’.

This year will likely signal the rise of one special kind of token, a security token, which provides 1 of the most encouraging cases for blockchain technology yet.

Considering that companies like SWIFT, the global payment transfer provider are busily creating their own proprietary blockchain-based services, the death of the ‘digital money’ concept is near.

Prior to SWIFT’s announcement, platforms like Ripple had already chipped away at Bitcoin’s value proposition. The ground-breaking cryptocurrency once had the ambition to give people the ability to be their own bank, but has since relinquished its goal and is now a speculative tool, with some utility to purchase other blockchain assets.

Utility is where the market headed after Bitcoin became old news.

The aptly named ‘utility tokens’ are the result of an ICO whereby users of a blockchain platform pay with the tokens sold during the ICO, or that they earn for providing some other relevant input.

Some of these tokens amount to loyalty rewards points given by credit cards, in some cases, and barely need to be denominated in token form for the platform in question to work.

Attaching value to them is an exercise in ambiguity as the market pretends that the underlying business’s value proposition and market make its tokens more valuable.

Participants with utility tokens are therefore purchasers of a service, and not investors in it. The result of their contribution to an unregulated crowd-sale is the ability to use the service itself, and nothing more.

A better balance is found in security tokens, which are essentially digital, liquid contracts for fractions of any asset that already has value, like a house, a car, a painting, or equity in a company.

Denominating fractional ownership of a real asset in tokens is an idea that is naturally more structured and means investors can expect that their ownership stake is preserved on the blockchain ledger.

Security tokens are a natural bridge between the traditional finance sector and blockchain and benefit both equally.

This is because the assets divvied up via tokens already exist in the traditional market, even the biggest markets like public or private equity and real estate.

And now many blockchain projects have platforms that directly undercut the old ICO model by tokenizing equity rights for pre-IPO companies.

The meteoric rise and fall of the cryptocurrency market at the beginning of Y 2018 created waves that washed the blockchain landscape clean.

What remained after the cleanse were a few projects of repute and real value, using the blockchain out of necessity rather than just seeking a quick fundraising route.

The trends this year demonstrate that companies looking to raise capital will no longer try to skirt institutional models, but instead move to ones that are already accommodating of regulations.

Considering its real use cases and ability to denominate value, the security token could muddy traditional financial markets in favor of the more hybrid model available from blockchain and its accompanying benefits.

Stay tuned…

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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