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Utility and Security Tokens: A Growing Case for Crypto Self-Regulation

Article by Ryan Smith

The early 21st century might very well go down in the annals of history as the gold rush of the modern age. Utility and security tokens are emerging from all corners of the globe and project teams are licking their lips as a new wave of investor funding is born. Capital from Initial Coin Offerings (ICOs) in 2018 has already surpassed the 4x mark compared to 2017. And we’re only just moving into the second half of the year.

Tokenization of assets existed well before the invention of Bitcoin or even the arrival of the Internet. But now they’re taking their place at the forefront of the next digital revolution. For better or worse, the Ethereum project has popularized token creation through its ERC20 standard. Why build your own blockchain when an off-the-shelf solution already exists?

The Nitty-Gritty – What is a Token? 

The only difference between a token and the spare change you carry in your wallet is where you can use it. Coins issued by national authorities and governments are considered a legal tender for everyday life and can be exchanged widely. Tokens, on the other hand, are usually issued by a private company for use in a local network.

A great example (that probably brings back childhood memories) is the tickets issued at your neighbourhood funfair.

Jokes aside, it should be apparent then that there are no strict rules when defining a token. You could issue your own family token from rocks in your yard. As long as you could get others to buy into the idea, a family tradition of rock tokens could theoretically take off.
In the cryptocurrency space, it’s utility and security tokens which have arrived first at the party.

Utility Tokens 
Just as listed in the examples above, utility tokens represent access to a company’s product or service. In the case of ICOs, companies often don’t have a product or service available upfront and are looking for funding. By offering tokens in exchange for capital, projects are making investors a promise of a future product/service. The investor is taking on the risk that the project will have a usable token sometime in the future of the proposed network. And hopefully, that token will have appreciated in value...

Read the article on finyear.com

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