Security Tokens vs. Utility Tokens – A Beginner’s Guide

One Platform, Many Functions

Blockchain, the pinnacle of decentralized, distributed, and transparent technology, is at its base a Platform. What is a Platform, you ask? A technological sense platform is a nurturing ground for growing and building applications that serve various purposes.

Being a platform, blockchain can be used for a variety of purposes. With a general-purpose technology as blockchain, there is no limit to what innovations can be made.

One such variety seen in the blockchain projects that come up today is the distinction in their native tokens. A token is a cryptographically linked piece of value issued by the project members. The use of a token can be anything from a medium of exchange to a piece of share in the project.

A token is a utility, an asset, or a unit of value issued by a company. In most cases, tokens are issued when a company launches an ICO/IEO/STO or any other token sale — that works more or less like an initial public offering (IPO). Over the years, the market has evolved several types of tokenized digital assets, each with their own properties.

The major classifications that we see today are Security tokens and Utility tokens.

Security Tokens

Security tokens derive their value from an external, tradable asset, such as stocks or real estate. If you buy a tokenized stock version, you will acquire the same rights you would get when you buy stock via a traditional stockbroker – profit share and voting rights. The only difference is that a token comes in digital form.

The major distinction to utility tokens is that security tokens are designed to be investments. Thus, they fall under the same regulatory oversight as other investment products. They are considered by many to be the key to cryptocurrencies achieving mainstream adoption due to their focus on tokenizing digital and non-digital assets, making them useful for almost any industry or application.

A security token is essentially an investment contract that represents legal ownership (as recognized by the SEC) of a physical or digital asset (like real estate, artwork, or ETFs) that has been verified on the blockchain. Security Token Offerings, more commonly known as STOs, have been gaining major interest over the past year. They mirror many qualities of the traditional stock market with the added advantage of being issued on a blockchain.

Important Characteristics

A Security Token, i.e., a token with attached rights and responsibilities, can have all of the following characteristics,

  • Access to multiple asset classes
  • Access to liquidity for traditionally illiquid assets
  • Access to a global network of investors
  • Dividend payouts

Major Security Tokens

Utility Tokens

A utility token has a wider functionality than a regular token like Dogecoin. Utility tokens do have value, but they cannot be considered money as straightforward as a coin. Utility tokens can provide value to investors in different ways. They give users access to a future product or service. Utility tokens are currently the most popular form of tokens.

Utility tokens were easily the most popular form of token issuance mechanism adopted during the 2017 ICO boom and later. The major reason was that utility tokens allowed projects to crowdfund their ideas without diluting the projects’ ownership. According to SEC Director of Corporation Finance William Hinman, a true “utility token” in the sense that many crypto investors seem to have in mind is probably best represented by Bitcoin itself: as he said at the Yahoo Finance All Markets Summit.

Important Characteristics

  • An incentive-based tool to drive human behavior in any network
  • Usually do not carry ownership or membership rights.
  • Used as part of the wide ecosystem
  • Can be used as an alternative for mediums of exchange
  • Can help in the evolution of internal network-based markets

Major Utility Tokens


As of now, there isn’t a clear-cut set of guidelines for what means what. In this nascent and evolving market, regulations and guidelines are of the utmost importance, for the novel reason that we do not know how to treat these different assets. Many experts like to point to the Howey Test (a set of sufficient conditions required for a given asset to be considered security), which sets guidelines for classifying an asset as a security. Still, the criticisms remain that it is an old guideline, made specifically for traditional assets such as stocks and real estate and so on.

For now, we can only use the traditional rules to make new classifications, as we have done above. But as new market strategies are developed, we will see better sets of rules to make better decisions.

Bitcoin live price
price change

As a side note, keep in mind that Blockchain technology general-purpose does not limit it to any form of innovation. We can see more varieties of tokenized assets in the future, some in a hybrid form, some issuing different types of tokens under one roof, and even come packaged in a way never before seen.

Stay up to date with our latest articles

More posts

How Can You Determine the Rarity of an NFT?

The rarity of a non-fungible token (NFT) is one of the most often debated topics on the internet. The rarity of an NFT is one of the most critical elements in determining its value. Understanding how rarity works is a significant advantage for anyone investing in the NFT market. How can traders learn to measure this feature for any digital asset? Our guide today will share more insight on this critical aspect. Is It Possible to Measure Rarity? There has…

What is Tornado Cash, and How Does It Work?

Decentralized and non-custodial, Tornado Cash is an Ethereum-based solution for privacy and anonymity. Severing the on-chain link between those who send and receive coins enhances transaction anonymity.  This guide will provide our readers with more insight into Tornado Cash. We will start with a general introduction and move deeper into how Tornado Cash works. We will also add a list of pros and cons to this system for the reader's benefit. Understanding Tornado Cash Decentralized protocols such as Tornado Cash…

How Can Crypto Trading Bots Help You Manage Your Investments?

Bots are computer programs designed to carry out specific activities automatically. They operate with the least amount of human input possible.  Crypto trading bots are automated programs that trade a single coin or a portfolio of cryptocurrencies. They trade on one or more exchanges on behalf of the owner or user.  Cryptocurrency bots can automate trading tactics to increase portfolio profits. Today, we'll take a closer look at this ever-expanding technology.  A Simple Way to See Crypto Trading Bots Artificial…

Can You Really Protect Your Crypto Investments Against Whales?

It is only natural that the price of BTC changes following whales' transactions. Because altcoins have smaller market capitalizations, this effect is even more pronounced on their prices. The ways whales manage to manipulate the market are inventive and can lead to heavy losses for small traders. In our guide, we look into the matter and reflect on how to protect a wallet against whales. Understanding the Concept of Whales The term "crypto whale" refers to a person or organization…

What Are Fractionalized NFTs?

Most people who use the internet regularly, whether for business or pleasure, are familiar with NFTs. Everyone in the crypto/blockchain community looks at these "Non-Fungible Tokens” with interest.  The only problem is that NFTs are becoming extremely popular and too costly to own.  In this context, Fractional NFTs, or F-NFTs, have entered the market to attract new investors. Imagine dividing a single NFT into smaller parts and making it available for purchase. This concept is the principle governing the growing…

Diluted Market Cap – A Beginners’ Guide

The value of a cryptocurrency is difficult to predict, especially if we are dealing with a new token. If you're looking to invest in cryptocurrency, measures like the fully diluted market cap can guide your choices.  The term "fully diluted market cap” will represent the core of today’s guide. We'll begin by defining the sector's market capitalization before moving on to more advanced notions. Market Cap in the Crypto Industry The total worth of an asset now in circulation corresponds…

Top Crypto Marketing Agencies to Promote Your Cryptocurrency Project in 2022

Nowadays, launching a crypto project can be a daunting task for most developers, especially considering the competition. This report claims that the industry amasses over 18,000 cryptocurrencies as of March 2022. Whether you focus on NFTs, DeFi, or any other crypto-related activity, you will have to face stiff competition. Fortunately, you can gain a competitive advantage over your peers with the help of crypto marketing agencies. These services cover all the promotional aspects your project needs to get into the…

The Difference Between Capped and Uncapped ICOs

Some ICOs decide to set a cap on how many coins investors can buy. However, some people choose to offer unlimited coins at the sale. Different teams can follow different strategies to obtain success in this growing market. Today, our guide aims to make a clear distinction between capped and uncapped ICOs. Understanding the Concept of ICOs An ICO (“Initial Coin Offering”) is a way to launch a new cryptocurrency. ICOs are a way to raise money for a project…

Is It Possible to Spot a Fake NFT?

Blockchain technology should have made life simpler for digital artists selling unique tokens of ownership to other people. A public ledger can give buyers a record of who owns a piece of art in perpetuity. Blockchain gave some artists a new chance to earn money. However, some artists admit that the last year's crypto boom has been a real mess.  Anyone can "mint" a digital asset as an NFT, even if they don't own it. How do you spot a…

Unstoppable Domains – A Beginner’s Guide

Unstoppable Domains are an intriguing and unique new option that is gaining traction in the crypto industry as more people become aware of them. Even though you may be inclined to dismiss them as simply another "crypto craze,” you may not want to be so hasty in your judgment. Whether you have your wallet or just learning about crypto, unstoppable domains have some unique advantages that you might consider utilizing for your website. This post will go over all you…