The year 2021 will see the rise of one type of token, Security Token; which offers one of the best use cases for blockchain technology. The security tokens are digital and liquid contracts for a small part of any asset that has a value such as a car, corporate stock, or real estate. Further, identification numbers and passwords have become an integral part of any business; moreover, employees need to enter a set of credentials if they want to access servers, files, and sensitive documents. Security tokens offer protection and take this to the next phase.
What is Security Token?
A Security Token can be defined as electronic software that can be used for access and identity verification instead of using an authentication password. The security token technology is dependent on multi-factor or two-factor authorization. It is also known as a USB token, hardware token, cryptographic token, authentication token, etc. The security token holds the information about verifying a person’s identity or a third-party system that provides verification services.
Types of Security Tokens
Security tokens act as a bridge between blockchain and the traditional finance sector, as it benefits them equally. This is because these tokens exist already in the traditional financial market and also in the biggest markets such as the equity and real estate sector.
Here are the few types of security tokens –
- Contactless Tokens
- Connected Tokens
- Disconnected Tokens
How to Invest in Security Token?
A security token does not have a utility, instead, it can be used as a tangible asset by the investor. Typically, a security token represents a small share in the company that has issued it. In this way, security tokens are also described as equity tokens. If you are looking at how to invest in the security token, then you should first create and register an account with a reputable STO trading platform. When they are registered, they need to undergo verification. The user should complete these formalities if they want to invest in a security token.
Why should you Invest in Security Tokens?
Security tokens are changing the way people look at cryptocurrencies. Here are the few pointers that explain why should you invest in security tokens –
For security tokens, smart contracts are utilized for contract design, while the blockchain is used for documentation. Hence the user does not need brokers or banks. This implies that STO is cheaper when they go public, and they can be traded much faster through blockchain.
Since STO is backed by real assets, people find it safer to invest in them rather than in IPO or ICO. This is because STO has real value, and not backed by fictitious assets and the probability of losing is much lower.
- Trade 24×7
STOs are linked to the blockchain; people can trade them over the network and they can trade it round the clock, as there are no opening and closing hours for the blockchain. This feature adds extra liquidity to the market which benefits the sale of security tokens.
- Complies with Regulations
The security tokens are certified by the SEC (the securities and exchange commission). This complies with the rules and regulations and it can be traded anywhere as it reduces fraud and increases security.
In conclusion, security tokens can be adopted in the future, but currently, they remain underutilized. It offers the investors to securely get involved in the cryptocurrency market. Presently, as the cryptocurrency market is not regulated, crypto investors might find the lack of regulations a major risk as the large-scale investors might need a secure foundation before they proceed with Investments for the long term. Even though there might be several security tokens that will get launched in the market in the forthcoming years, there are more chances that the security tokens might be adopted everywhere.