Blockchain has proved to be among the fastest-growing technologies in the past few decades. It’s revolutionary decentralized characteristic is being adopted by several industries. It’s popularity is partially achieved because of cryptocurrencies, a by-product of Blockchain which is now a decade old. The first established cryptocurrency Bitcoin was first introduced in 2009.
When Bitcoin was first launched, the role of cryptocurrency was limited to being just a currency. However, presently, the term ‘cryptocurrency’ is a bit old. The era of Initial Coin Offerings (ICOs) brought with it thousands of cryptocurrencies with ICO-generated coins usually called ‘tokens’.
The current trends indicate that 2021 will likely point to the rise of a unique category of token referred to as a security token. This token is observed to have provided one of the most interesting use cases for blockchain technology till date.
Security tokens, which are essentially digital, liquid contracts for fractions of any asset that already has value, like a house, a car, a painting, or equity in a company.Using security tokens means investors can expect that their ownership stake is preserved on the blockchain ledger.
Security tokens is the term given to a blockchain generated token that is basically a digital, liquid contract that represents fractions of a valuable asset like a house, car, equity in a business, valuable painting, movie production, etc. By purchasing a security token, an investor can stay assured that their ownership stake is recorded in the blockchain ledger.
These tokens are subjected to federal regulations because they are termed as securities. In case of the ICO’s inability to comply with these regulations, they can face severe penalties. Nonetheless, security tokens have great capacity to serve as powerful use-cases when these regulation requirements are properly met.
The sudden and exponential growth and following crash of the cryptocurrency market during the first quarter of 2018 in combination with the steady market recovery through 2020 resulted in the filtering of the blockchain industry. What remained subsequent to this period of turmoil were limited projects of repute and real value. These projects are observed to have been using blockchain technology out of necessity instead of just as a means of quick fundraising.
Additionally, newer projects seeking fundraising won’t attempt to go around institutional models but instead, choose the ones that are already complying with regulations. In light of the real-use cases and the capacity to denominate assets, the security tokens can potentially disrupt traditional finance in favor of the hybrid model arising from blockchain.
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