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Equity vs. Security Tokens: What’s the Difference?

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It seems that the internet controls everything in our lives. Smartphones help us connect to people via video calls, chats, and emails at the touch of a button. The same thing is happening with currency; however, people need a third-party to trust with their money to be able to complete a transaction.

Therefore, there are various blockchains that have been set up to provide this third-party service. This doesn’t only apply to currency; it applies to any transaction involving value, such as goods, property, work, and even votes. All of these things are enacted by a token that is a representation of something in a particular ecosystem.

Equity and security tokens are funding startups, but it can be challenging to understand the difference between the two of them. Let’s put both of them under the microscope and help you clearly understand what they are and what the difference between them is.

Security Tokens

The simplest way to explain a security token is by clarifying what it does. It basically represents an actual asset in a company that can be offered to its investors. A business that operates with security tokens and offers them to its partners or investors is allowing them to have a share in the company or the right to claim profit share. It is a completely safe and stable tool that provides investors with authentic rights to claim their investments.

Equity Tokens

An equity token is a different category of security token that works as an actual share in either the prime company, third-party asset, or projects and takes its value from the revenue or loss of a company. Investors own their given percentage of the whole business, like any other stock purchase. Holders can also be in possession of a share of the company’s profits and can have a say in big decisions. The real difference between an equity token and an actual share has to do with documenting ownership. An actual share is saved to a database and can be associated with authorized documentation, while the ownership of an equity token is recorded on a blockchain.

Benefits of Security Tokens

If you want to be an investor or you already have a company and want a profitable way to raise interests and finances, security tokens are the right thing for you; they will help your business to grow and flourish. Since security tokens act as investment contracts, the investor expects to have profits, dividends, revenue share, or goodwill appreciation in the market. Security tokens fall under strict governmental regulations and laws that determine who buys them. A start-up company’s investors can benefit a great deal from security tokens since they offer a transparent and honest investment experience.

In the coming decade, it is almost certain that a high percentage of businesses will be using only tokens and blockchains to perform any exchange or transfer of value, and that will even include taxes. A lot of people may not embrace the idea in the beginning, but it is a technology that we should all become familiar with. A shareholder or an investor doesn’t have to sign papers and documents anymore to have shares in a business or company; security and equity tokens are the real deal.

There is a significant difference between both of them, so make sure you understand the difference between them and how they are both used. Once you have a handle on that, everything else will fall into place.

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