Crypto Academy Week 10 - Homework Post for Professor @pelon53; Tokens- Understanding Security, Utility and Equity Tokens

Hello Steemians, it's me with the username @beckie96830. This is my Homework Post for Professor @pelon53; Tokens- Understanding Security, Utility, and Equity Tokens.

Introduction to Tokens

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Research has shown that Tokens and Digital Coin have been used interchangeably. However, the difference between the two can not be overly emphasized. Tokens on a singular note are developed based on existing blockchain and one of the most popular tokens was developed in the Eutherum blockchain called ERC-20 tokens among others.

Tokens are referred to as cryptocurrencies that don't have a pre-existing blockchain rather they are carved out of an already existing blockchain network. They can be created by persons within the blockchain in the ecosystem. The current statistics of existing tokens into thousands and some of them includes; USDT, USDC, DAT, BAT etc.

There are various types of tokens in existence. However, I would be treating three of the types of token and they are; Security Token, Utility Token and Equity Token

Security Tokens

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Security tokens are digitized form of traditional securities which can represent a form of ownership or rights indicating ownership. These tokens are categorized under federal securities and regulations, and any form of violation attracts penalties. In USA for instance, these regulations includes Regulation D, A+ and S respectively.

Security Token Offering (STO) are created to boost investors confidence. For a token to be tagged a security token it has to pass the Howey Test. The Howey Test is a test created by the Supreme Court to check whether or not a particular token is eligible as an nvestment contracts because security tokens as also seen as investments. This provision was made under the Securities Act of 1933 and Securities Exchange Act of 1934 respectively.

A typical example of a Security Token: Polymath

• What is POLYmath?

Polymath is a token which aims to flip the miniscule portion of the market capitalization of cryptocurrency and make it more valuable than the other tokens. This can only happen through the use of the POLY token to manage the entire network program. With certain templates outlined and put in place an issuer can easily and confidently creates it's own security token using the tested and trusted polymath website

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• The future of POLYmath

While there are some downsides on the traditional securities, polymath has taken a big approach to tackle these downsides by providing basic transparency, efficient and security. This makes it more attractive to other block chains who also consider offering these basic amenities but has failed to do so. This step taken by the polymath developers not only makes for a friendly market environment but also prevents it from early liquidation. It not only grows rapidly, it also becomes the first, biggest and developed security token.

• POLY token and it's market stats

POLY token is a utility token on the polymath network. The native POLY tokens are utility tokens while the platform is a security token. Below is the market stats of the POLY token.

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Stats	Overview
Coin type	Utility Token
Token type	ERC-20 token
Initial Price	$0.79
Rank by MarketCap	297
MarketCap	$240 million
Total supply	1 billion
Circulating Supply	400 million
All-time high	$1.64
All-time low	$0.0185
Price % change since launch	95%

Utility Token

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Utility tokens are user tokens distributed during crowdsales as a project executes it's Initial coin offering. They cannot be likened to security tokens because they're not backed up by the law or regarded as a viable investment project. Utility tokens are also called crypto tokens which represents a certain amount of value. They are represented by ledger entries into the internal system.

For instance: Utility token could represent-

• A defined number of customer loyalty points
• A form of given entitlement
• Other cryptocurrencies

A typical example of a Utility Token: Saicoin

Technically the term Sai uses a dual token system: Saicoin and Saifund. Saicoin is the major utility token that was brought into existence by David Vorick and Luke Champine of Nebulous Inc. The Sia blockchain which produces Saicoin leverages decentralization through the following means:

• Security: Since the information is protected and only available through the user's encryption key, a rogue node would not be able to acquire it anyway.

• Faster Processing time:Content distribution and question clarity would be far quicker if you have a decentralized framework that is globally distributed across the world.

• Cheaper Alternative:The nodes in a decentralized system look after themselves. This alone makes them a less expensive choice.

Note: A blockchain is a moment sequence of an eternal database of data managed by a network of nodes that are not controlled by a singular body. The properties of a blockchain are: Immutability, Transparency and Decentralisation.

Blockchain

Equity Tokens

An equity token is a form of security token which works like a conventional stake in the overall value, a third-party asset, or a project, and derives its quality from the performance or failure of the organization. The process of documenting ownership is the only substantial difference between an equity token and a conventional share. A typical share is registered in a database and comes with a certificate on document. On a blockchain, an equity token records corporate property.

How equity tokens are offered

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Equity tokens are usually sold in three stages: an early seed round, a public offering, and a listing on a token exchange. When fully functional, this system will:

• Enable investors to invest in blockchain-based companies while remaining compliant with the laws of the issuing jurisdiction's regulator.
• Allow entrepreneurs to use a model to finance new products.
• Will provide a basis for regulators to evaluate token offerings.

Three moving parts of the mechanism must be in order for the equity token model to function.

• Investors need easy access to trustworthy information about STOs.
• To identify and sell these securities to interested buyers, there must be trustworthy and competent brokers-dealers available.
• Crowdfunding sites must be able to appeal to both retail and institutional investors while remaining compliant with Know Your Customer and Anti-Money Laundering regulations.

A typical example of an Equity Token: Neufund

Neufund is an equity ecosystem that is managed by the group.
Neufund is a smart contract ecosystem based on the Ethereum blockchain. The blockchain-based platform establishes a new type of ownership that is neither capital nor stock, but crypto tokens that reflect equity while still being as liquid as a currency. Such tokens have intrinsic value in the network, but they also have a market value. These tokens have inherent value for the network, but they also reflect the value of a company ” in the real world – off-chain.

Conclusion

Understanding each aspect of the history, types, functions and so on of tokens stated above can give clear view of how the block chain actually works and easy identification of blockchains that offer tokens.