Crypto Academy Week 10 - Homework Post for [@pelon53]

Before I'm looking into the security token, it but necessary we have a basic understanding of the token itself.

What are token

It not easy to point out the actual definition of a token, but I try to. Tokens represent a stake, value, or voting right in a particular ecosystem. It is good to point out that token and cryptocurrencies coin is not the same thing. For example, Bitcoin and Ethereum are cryptocurrency coins that are used on different ecosystems, while tokens can't be used that way. Tokens are assets used during ICO by companies to give to their investors.

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What is ICO

Initial coin offering from its name is the selling of coins to raise capital to execute a project. It's digital fundraising for a project by offering new cryptocurrencies. These coins are called token which is then sold to investors to raise capital. This token can then be digital money as the project grows in the network. Ethereum is the highest leading blockchain platform for ICO with more than 70% market share.^Source

Types of token

• Security token
• Utility token
• Equity token

I will not be talking about all, I will be explaining little knowledge on security tokens, utility tokens, and equity tokens.

Security token

A security token is authorized to access a network service for the owner. It is usually a hardware device in a form of a smart card. the device is purposely for authenticate and storing the investor's digital information. A security token is the only means for an owner to able to have access to a network service.

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They are different types of a security token, wireless Bluetooth token, chips ( electronic keys).

In blockchain technology, security tokens act like shares or stocks of a company which are handed to investors at the end of ICO (initial coin offering). Earning a security token of a project makes you a shareholder of project stocks. The investor's security token is equal to the investor's investment contract. The performance of the project counts a lot on the value of the security token.

Important of Security tokens

• Improve traditional financial transaction
• Speed up execution by eliminating the middle man
• Large exposure since the internet is a free market
• Number of investors is very high
• No need to hire a lawyer for his services to purchase a security token
• No difficulty in the liquidation of security token

Note: security tokens are classified as securities base on the rules of the Howey test.

Example

BCap ( Blockchain Capital)

This was the first, most active, and oldest company to offer security tokens. The company was then founded in 2013 by Bart Stephens, Wradford Stephens, and Brock Pierce with headquarters based in San Francisco, CA, USA.
BCap was the first security token that was sold through a security token offering. Blockchain Capital in just six hours raises 10 million after the ICO was conducted in April 2017.

Screenshot of Market cap and value as of the date of this post, the Asset is locked

Assets that are locked (via smart contracts or legal contracts), allocated to the team or private investors, or not able to be sold on the public market, cannot affect the price and thus should not be allowed to affect the market capitalization as well.^Source

As of now, holders of the BCap token enjoy all the profits earned with a deduction of 2.5% management fee and 25% performance fee. This percent is based on the investor total asset managed and return respectively.

Utility token

While a security token is about access to a network service on a blockchain, a Utility token is about accessing the services of a protocol on the blockchain. A utility token is often used for a particular purpose within a platform. Most of these platforms used the utility token for payment. The security of the utility token is dependent on the security of the platform.

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Investors can buy utility tokens during the ICO given that the prices will be low and affordable. It also a means the is used to carry out fundraising for a project. Looking at some problems faced by the utility token

• Utility token does not have any value in case the project failed.
• Utility tokens have liquidity problems if they happen not to reach the necessary capital for the project.
• Utility token does not adopt cryptocurrency.
• they are not strategically plan put in place to increase the value of the token.

Example

Basic Attention Token (BAT)

BAT is an advertising system hosted on the Ethereum blockchain. The proposed is for the payment of content creators and publishers on the Brave browse. BAT started its ICO in May 2017.

The value is determined by the attention of the users. On the Brave browsers, users can pay to see different ads, earn BAT tokens for viewing ads, and the possibility of blocking ads.

Screenshot of Market cap and value as of the date of this post

Equity token

Equity tokens and security token are likely to be looked upon to be similar to each other. An equity token is just another form of a security token that functions as a traditional stock asset. With the equity token, the voting right and ownership on the blockchain are giving to the investors. These give the investors some feeling of ownership as the blockchain network grows.

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Equity tokens are giving to investors by the company by opening ETOs (equity token offerings). ETOs is a means of raising fund by a company by offering Equity tokens on the blockchain.

Giving at the value of Equity token, which is what investors are looking at, ETO is going to be the most preferred means of fundraising by companies on the blockchain. Blockchain companies offering Equity tokens through the ETOs are limit to raise more funds for their projects.

Important of Equity token

• It a safe option with strong regulation
• it allows investors to be the boss over their assets with the power to control.
• it maintains the value given that company operations are maintained.

Example

DAO (Decentralized Autonomous Organization)

From the name, DAO is an innovative way of running organizational operations using blockchain technology. Giving blockchain will always offer security and a high level of transparency to the organization. The algorithms controlling the organization are known as smart contacts hosted on a network (blockchain).

The dao happens to be one of the best DAOs projects created by Simon Jentzsch in 2016. It proposed is to be the largest DAO on the Ethereum network.

Screenshot of Market cap and value as of the date of this post

As I mention, DAO gives the possibility to run an organization with a very high level of transparency, save the wastage of time in preparing paperwork for registration.

Conclusion

We have seen the three different tokens with examples, they are different from each other. It now left for you to take your time and think about where you want to invest your money.

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CC: @pelon53