Cryptocurrency vs Security Token: What is the Difference?
For centuries, there has been an evolution in the act of buying and selling of commodities, exchange of goods and services, etc., ranging from trade by barter system, sale of cowries and petals, the use of coins, and the use of monetary system practiced in this present age.
These various means of payment have paved the way for the emergence of the newest payment system set, which requires using digital currencies.
Cryptocurrency is a digitalized form of currency well protected by cryptography, ensuring that the digital currency is not duplicated or double-spent.
Crypto combines several encrypted algorithms that use cryptographic systems to secure trading entries in the blockchain market.
Most cryptocurrencies are decentralized networks based on blockchain technology, independent of governmental controls and centralized jurisdiction. Cryptocurrencies can either be mined or transferred.
Blockchain technology is the underlying technology that allows for the functioning of cryptocurrencies. Blockchain serves as a ledger through which transactions are conducted.
Types of Cryptocurrency
Cryptocurrency has been widely accepted into everyday dealings, making it a popular form of currency to own. Since the infamous Satoshi Nakamoto introduced the Bitcoin white paper in 2008 and later into the marketplace in 2009, the age of cryptocurrency was born.
Bitcoin has an estimated market cap value of $700 billion at the time of this writing.
Other cryptocurrencies were fashioned after it due to its successful creation and acceptance in society. They are known as Altcoins. Some of them include; Solana, Litecoin, Ethereum, Cardano, etc.
Pros of Cryptocurrency
Cryptocurrencies were initiated to improve the financial market by making it more conducive for individuals to carry out transparent financial transactions without limits. Some of these pros include;
- Easier transfer of funds from one individual to another without interjection from a third party
- Seamless delivery of funds transferred
- Deflationary nature as there are a finite number of tokens (such as Bitcoin)
A security token is an intermediary that ensures the financial sector and blockchain function together, benefitting from one another equally. It makes use of a decentralized model of operation just like cryptocurrency.
Security tokens are private and public assets owned digitally by individuals in the form of real estate, shares, automobiles, commodities, etc. Security token also confers value on purchases as they ensure the security of these assets on the blockchain ledger.
Security tokens were created to revolutionize the financial market into more attractive, free of centralized jurisdiction, and accommodate the operation format of blockchain technology.
Pros of Security Tokens
- They secure the assets of investors
- It is a link that fosters a symbiotic relationship between the financial sector and blockchain, where both entities benefit from each other.
Difference between Cryptocurrency and Security Tokens
Cryptocurrencies are monetary assets, while security tokens are digital property assets.
Security tokens bridge the financial sector and blockchain gap, making them function altogether, while cryptocurrencies are traded on the blockchain ledger.
Cryptocurrencies are highly volatile and can lead to loss of funds if not appropriately managed, while Security Tokens are backed by assets, which help minimize loss.