The following article is a short summary of an article found on Hacker Noon. We periodically drop knowledge bombs to share interesting tidbits and insights on cryptocurrency and ICOs with our community.
How are Security Tokens Different From Utility Tokens in ICOs?
Utility Tokens are seen as promises for usage of a future service at a discount, and Security Tokens represent modern day securities and are susceptible to security laws. Through the lenses of the Howey Test, most ICOs nowadays are considered securities.
The Howey test helps users identify whether a token being offered is a Security Token or a Utility Token and their rules are as follows:
- There is an investment of money.
- The user expects to profit from the investment.
- The investment of money is in a common enterprise.
- Any profit comes from the efforts of a third-party or promoter.
In the current space, most people that invest in ICOs are not intending to use the service that is provided by the offering as they are waiting for the coin to be hyped up and to be listed on IDEX or Binance (if they are lucky). This might make the argument that most of these ICOs are a Security Token in the eyes of regulatory bodies.
You can learn more about the difference between Utility Tokens and Security Tokens through Hacker Noon here.
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