A security token is essentially a digital form of traditional securities.
What Is a Security Token?
A security token is essentially a digital form of traditional securities. There are three primary types of traditional securities: equities, debt and a hybrid of debt and equity. Examples of securities include stocks, bonds, ETFs, options and futures. Hypothetically, any of these things can be tokenized to become a security token. It is possible that in the near future, security tokens could serve as a very viable alternative and competitor to stocks and other traditional securities.
It is important to note, however, that security tokens are not the same exact thing as cryptocurrencies. Many people make this mistake. Cryptocurrencies such as Bitcoin, Litecoin and Bitcoin Cash run on their own blockchains. Security tokens run on an existing blockchain, meaning that a security token could run on the Ethereum blockchain. Actually, Ethereum is the blockchain that is most commonly used for the deployment of security tokens. Many companies use ERC-20 tokens, which are Ethereum-compatible tokens that can run on the Ethereum blockchain using smart contracts for execution.
People who own security tokens can profit from the performance of the token. Sometimes, they can also earn profits through dividends in the form of additional tokens and they often get other benefits such as voting power. In this way, security token holders can get many of the same benefits of stocks and other securities. One of the most well-known security tokens is Blockchain Capital (BCap).