What Is Security Token

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Definition/Example

• For us to know exactly what is a security token is, we first need to know what security really mean in term of investment.
• Security in term of investment means a financial instrument that hold a value and can be trade in any investment market.
• In the US, they usually follow the Howey Test to determine if a certain thing is a security. There are 4 key points in determining it. That 4 key points is:-

1. There is investment of money
2. The investment is made into common enterprise ( Common enterprise is group of investor that pool their money together in a project with the expectations of profit)
3. Investor expect to make money from their investment
4. Any expected profits or return due to the actions of a third party or promoter

(The information above is obtained via Investopedia website)

• So based on this, we can safely assume that security token means a cryptocurrency that represent ownership of an asset such as stock, bond and other traditional asset.
• Some examples of security token is INX Token (INX) and Blockchain Capital Security Token (BCAP).
• I will not categories any cryptocurrency that was labeled as a security by the SEC as a security token because it either must be proven by law or the creator itself deemed it as a security.

Usage

• The main usage of a security token is representing a traditional asset such as stock, bonds, derivative, and many more traditional asset in the blockchain world. In other word, it basically act as a tokenization tool for all of this asset.

Why Some Crypto is Labeled as a Security

This one will not solely focus on the cryptocurrency regulations on the US alone but also taking consideration of other countries law too.

• For most countries in this world, the reason why a cryptocurreny is deemed as a security is because they simply don’t know what type of investment should cryptocurrency be categories as. Cryptocurrency is basically still new for most of the countries in the world and making a new investment categories around it is still kinda hard. So the easiest way to label it is just by labelling it as a security. But they don’t go around suing crypto company and exchange, not like that certain organization in the US.
• For the US, labelling a cryptocurrency as a security is just based on how the SEC views a cryptocurrency using the Howey Test. The SEC stand on cryptocurrency itself is still unknown because there is no official statement from them about crypto. But based on how they act by taking a lot of crypto company and exchange to the court because some of them ‘allegedly’ sell a security, we already know what are they stand regarding cryptocurrency.

Other/Conclusion

• Labelling crypto as a security will not work in the long term. Most countries in this world must think a better way for them to label what type of investment a cryptocurrency is.
• I’m really grateful that a lot of countries is finally doing most of this work to create a proper law around cryptocurrency itself. This just show how serious some of this countries are in using and integrating blockchain technologies in their financial system.
• As for the SEC in the US, regulations via enforcement is not working for your guys. Their recent loss and dropping a charge in the Ripple vs SEC case pretty much proved most of this point. Please, just create a proper system and regulations or cryptocurrency will not survive in the US and all of the crypto company will move on to other countries that takes crypto regulations seriously.

Feel free to read my other articles:-

1. What is IoT Token
2. What is Gaming Token
3. What is Governance Token

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