2017 was the era of utility tokens and ICOs. Since the second half of 2018, the whole world is talking about security tokens.
Last year, buzzwords such as "blockchain" or "cryptocurrencies" were taken up by just about any medium and the general public began to think about the topic. So-called initial coin offerings (ICOs) popped-up like mushrooms, leaving a good number of companies, as well as investors, with a bunch of money. But also, a lot of disgruntled investors who lost some of their assets. However, ICOs are not just a tool to get some fast money, but an innovative and necessary tool for corporate financing when used properly.
Until mid of this year, ICOs were booming, mostly selling utility tokens. Currently, in the second half of 2018, security tokens as an investment opportunity and security token offerings (STOs) for corporate financing are slowly gaining ground.
Utility Token vs. Security Token - what's the difference?
To understand why security tokens are becoming more and more important as a financing and investment tool, as well as bringing some calm to the entire crypto craziness and providing more security for investors, one should understand the difference between security and utility tokens.
If a company creates tokens that give users access to services or products, we are talking about utility tokens. An essential feature of these tokens is that they are not designed as an investment but represent a kind of "digital ticket". By selling these tickets in a crowd sale (the ICO), the company receives the funds it needs, and investors receive tokens that they can immediately, but mostly in the future, exchange for products and / or services of the same company. Ideally, as the utility tokens gain in value through rising demand, investors are speculating on an additional profit on a later sale. However, the value is determined purely by supply and demand, or by what a buyer is willing to pay for it.
A security token, on the other hand, derives its value from the performance of the enterprise behind it. In simple terms, therefore, it is to be regarded as a digitized or even more specific "tokenized" security and is consequently also subject to securities regulations. Security tokens can thus represent shares, bonds, dividend-right certificates, etc., and in each case represent a monetary investment.
The advantage, both for the publishers as well as for the buyers of the security tokens, is the security, through the legal regulation of securities. One example is CONDA's recently issued digitized corporate shares to all existing shareholders. Each token represents a no-par-value share and when a token is transferred from one shareholder to another, a non-manipulable entry on the blockchain occurs, on basis of which the entry in the share register of the company takes place. The transfer of a token is equated with the traditional transfer of a stock. In addition, security tokens can be transferred more easily regardless of location and the resulting costs can be reduced.
What does this have to do with crowdinvesting?
Crowdfunding means financing a company / project etc. through the many. Many individuals invest small amounts and thus finance the project as a crowd. If the investors not only receive a gift, but in the best case, they draw a financial profit (through loans, profit participation rights, shares, etc.) we call it “crowdinvesting”.
Crowdinvesting has established itself as alternative financing tool in recent years and has already undergone tremendous development as a result of legal, technological and tax changes. In the last year, especially the technological advances came in handy for the financing tool - as you might expect - with the introduction of smart contracts (what are smart contracts) and blockchain technology.
STOs are therefore simply crowdfunding using blockchain technology. With the advantages that transactions are transparent and secure, payments can be made faster and more efficiently, and switching off intermediaries saves additional costs.