A security token is a digital representation of traditional securities, which can be classified into equities, debt, or a combination of both. Examples of traditional securities include stocks, bonds, ETFs, options, and futures. Through tokenization, these traditional securities can be transformed into security tokens. In the future, security tokens have the potential to become strong competitors to stocks and other conventional securities.
It is important to distinguish security tokens from cryptocurrencies, as many people mistakenly believe they are the same. Cryptocurrencies like Bitcoin, Litecoin, and Bitcoin Cash operate on their own blockchains, while security tokens utilize existing blockchains like Ethereum. Ethereum is the most commonly used blockchain for deploying security tokens. Companies often use ERC-20 tokens, which are Ethereum-compatible tokens, to execute smart contracts on the Ethereum blockchain.
Security token holders can benefit from the performance of the token and may receive dividends in the form of additional tokens. They also enjoy other advantages, such as voting power. As a result, security token holders can enjoy similar benefits to those offered by stocks and other securities. One notable example of a security token is Blockchain Capital (BCap).
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