Security tokens: Heralding a New Era in Blockchain

Published in Fintech

Blockchain is evolving into a new phase of our technological society. It is growing exponentially like other life-changing technologies used to, similar to the internet. The different possible ways of making money, presenting projects and bringing new ideas to light every day is what makes the cryptocurrency world so interesting. But let’s focus on a soon very hot topic... security tokens.

Utility tokens were one of the hottest topics in the past bull-run, Initial Coin Offerings (ICOs) and token generation events were the easiest and quickest way for a project to raise funds. Same for the investors, the returns in ICOs used to be way higher than by investing in higher market cap coins. For the next era of blockchain technology, we should prepare for something new, security tokens. Imagine a fully-regulated token that represents shares of a company.

The difference between Utility tokens and Security tokens

A utility token is the “coin” backed by a project, which is used to raise money in an ICO and should at least have some use. Usually, these are Ethereum based tokens, since this is one of the most simple ways of creating a token and programming some smart contracts on it. The actual “use” of these tokens is mostly some sort of access to a platform, or a currency to purchase a specific service.

On the other hand, security tokens or equity tokens are a regulated way of creating a token and building its own ICO. Unlike utility tokens, security tokens don’t need to have a “utility”. Their use case is that they represent a real share of the company. So this type of token is the equivalent of issuing company stock on the blockchain. Regarding the founders of a Security token based company, it won’t be that easy to raise millions anymore. The team won’t just create a website and a whitepaper to start raising money. This time the tokens and the company are regulated by the Government, which reduces the chances of a fraud. Or at least enough to get accepted by the institutional regulations. So when we talk about security tokens, that’s where the traditional stocks and the blockchain framework find their way of getting together.

Why are Security tokens so important?

Security tokens are a brand new cryptocurrency category that will likely play a major role in the space in the next years. The main idea of a security token is to remove the middleman in a transaction. This middleman is the main cause of risk, fees and delays in non-peer-to-peer transactions.

Security Tokens bring a number of improvements to traditional financial products by removing the middleman from investment transactions. The removal of middlemen leads to lower fees, faster deal execution, free market exposure, larger potential investor base, automated service functions, and lack of financial institution manipulation.

Security tokens also come with many benefits for regulators. Issuers can, for example, code lock-up periods right into the security token. This makes the violation of lock-up period times physically impossible.

The era of STOs and ETOs

As of 2019 we will start to see how STOs (Security Token Offerings) and ETOs (Equity Token Offerings) dominate the blockchain market. And since this new way of contributing to a project or asset is SEC regulated, there will be fewer worries for new people entering the market. People who used to dislike cryptocurrencies might now feel safer venturing into the space and start experimenting with the technology.

This next “boom” of new money flowing into Security Tokens, might be a little different than it happened with ICOs. There will be fewer STOs as there were ICOs, since the process of building one is way more complex. But still, there will be quite a lot of them. So more certainly, in this phase of the cryptocurrency space, there will be a couple of STOs dominating the market.


Everything you've Always Wanted to know about Fintech in 5 Minutes

Published in Fintech

The financial technology (Fintech) industry is thriving globally and received over $31 billion in investment during the course of 2017.

According to EY’s Fintech Adoption Index, a third of consumers worldwide are using two or more Fintech services, with 84 percent of customers saying they are aware of Fintech (up 22 percent from the previous year). But users are often unaware that the financial services applications they use count as “Fintech”, or may not know what exactly Fintech and its accompanying jargon means.

In this article we'll explain all the crucial terminology you need to know to understand the sector.

Financial technology is broadly defined as any technological innovation in financial services. Those actively engaged within the industry develop new technologies to disrupt traditional financial markets.
Various start-ups have been involved in the process of creating these new technologies, but many of the world’s top banks including HSBC and Credit Suisse have been actively developing their own Fintech ideas as well.
Fintech companies utilize technology as widely available as payment apps to more complex software applications such as artificial intelligence and big data.


A cryptocurrency is a decentralized digital currency which uses encryption - the process of converting data into code - to generate units of currency and validate transactions independent of a central bank or government.

Bitcoin and Ether are the most common form of digital currencies. But there are other forms of virtual cash, such as Litecoin, Ripple and Dash (i.e. “Digital Cash”).


‘Bitcoin’ – a term we’re more used to hearing even in mainstream finance – was the first and one of the most prominent cryptocurrencies used by traders in the world of Fintech.

It all began when an unknown person(s), under the pseudonym Satoshi Nakamoto, designed Bitcoin as a peer-to-peer (P2P) payment network without the need for governance by any central authority. In an introductory white paper introducing the virtual currency, Nakamoto defined Bitcoin as: “A purely peer-to-peer version of electronic cash (which) would allow online payments to be sent directly from one party to another without going through a financial institution.”


Blockchain is a form of distributed ledger technology (DLT). This means that it maintains records of all cryptocurrency transactions on a distributed network of computers, but has no central ledger.

It secures the data through encrypted ‘blocks’. Various blockchain experts believe the technology can provide transparency for a multitude of different industries, not just the financial services.

The original blockchain network was created by Bitcoin-founder Nakamoto to serve as the public ledger for all Bitcoin transactions.


Ethereum is another type of blockchain network. It was proposed by a 19-year-old Russian-Canadian programmer, Vitalik Buterin, in 2013.

Ethereum differs to the original blockchain in that it is designed for people to build decentralized applications. These are applications which allow users to interact with each other directly rather than having to go through any middlemen, Buterin said, explaining the project in 2014.

Ether is the value token of the Ethereum blockchain. It is traded on cryptocurrency exchanges.

Disruptive innovation

Disruptive innovation happens whenever new technologies alter the way markets operate.

Though not exclusively a Fintech term, it is often used to describe events in the financial services where technological developments force financial institutions to rethink their approach to the industry.

Financial services firms engaged in Fintech can even “disrupt” themselves at times. “We continue to disrupt and challenge ourselves,” Christina Hamilton, head of partnerships and international expansion at remittance firm Western Union, told CNBC in an interview in July.


Regulatory technology (Regtech) is technology which helps firms working in the financial services industry meet financial compliance rules.

One of the main priorities of Regtech is automating and digitizing Anti-Money Laundering (AML) rules which aim to reduce illegally obtained income, and Know Your Customer (KYC) processes which identify and verify the clients of financial institutions to prevent fraud.

The U.K.’s Financial Conduct Authority was the first governmental regulator to promote the term. Regulators like the FCA are working with Regtech firms on a range of different applications, including AI and Machine Learning, to improve the efficiency of compliance in the financial services and cut costs.


Insurtech is a subset of Fintech which relates to the use of technology to simplify and improve the efficiency of the insurance industry.

A report by consulting giant Capgemini and non-profit insurance industry body EFMA last month found that traditional insurance firms are facing increasing competitive pressure due to the emergence of a number of Insurtech start-ups.

Initial coin offering

An initial coin offering (ICO) is a crowdfunding measure for start-ups that use blockchain.

It involves the selling of a start-up’s cryptocurrency units in return for cash.

ICOs are similar to initial public offerings (IPOs), where the shares of a company are sold to investors for the first time. However ICOs differ to IPOs in that they deal with supporters of a project rather than investors, making the investment more similar to a crowdfunding experiment.

Last month China banned ICOs over concerns that the practice is not regulated and can be opened up to fraudsters.

Open banking

Open banking refers to an emerging idea in the financial services and Fintech which stipulates that banks should allow third party companies to build applications and services using the bank’s data.

It involves the use of application programming interfaces (APIs) - codes which allow different financial programs to communicate with each other - to create a connected network of financial institutions and third party providers (TPPs).

Proponents of open banking believe that an “open API ecosystem” will allow Fintech start-ups to develop new applications such as mobile apps to allow customers greater control over their bank data and financial decisions.


Robo-advisors are platforms that automate investment advice using financial algorithms.

They limit the need for human investment managers, thereby dramatically reducing the cost of managing a portfolio.


The “unbanked” or “underbanked” are those who do not have access to banks or mainstream financial services.

Various Fintech companies have developed products aimed at addressing this portion of society, providing them with digital-only solutions to open up their access to the financial services.

The Federal Deposit Insurance Corporation (FDIC) estimates that there are 10 million unbanked or underbanked American households.

Financial inclusion

Financial inclusion refers to Fintech solutions that provide more affordable finance alternatives to disadvantaged and low-income people who, like the unbanked/underbanked, may have little to no access to mainstream financial services.

This is one of the most important areas for Fintech companies that operate in developing markets.

Smart contracts

Smart contracts are computer programs that automatically execute contracts between buyers and seller Smart contracts are often blockchain-based and can save huge amounts of time and costs involved in transactions which usually require a human to execute them.

In Ethereum for example, the contracts are treated as decentralized scripts stored in the blockchain network for later execution.


Accelerators, also known as “seed accelerators”, are programs enacted by financial organizations to mentor and work with Fintech start-ups.

Fintech accelerators can be either privately or publicly funded, with several programs being run by big banks, from the U.K.’s central bank, the Bank of England, to the multinational private bank Barclays.

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