What is the difference between utility and security tokens?

Utility tokens and security tokens are both types of digital assets, but they serve different purposes and have different characteristics.

Utility Tokens

Utility tokens are a type of cryptocurrency token that give users access to a product or service provided by the issuer. They are not designed to be an investment or a store of value, but rather a means of exchange within a specific ecosystem. Examples of utility tokens include Ethereum's Ether, Filecoin's FIL, and Basic Attention Token's BAT.

Utility tokens are often used in Initial Coin Offerings (ICOs) to raise funds for the development of a product or service. Investors buy these tokens in the hope that they will increase in value as the product or service becomes more widely used.

Security Tokens

Security tokens, on the other hand, are digital assets that are backed by real-world assets such as equity, debt, or real estate. They are designed to provide investors with ownership rights or other financial benefits, and are subject to securities regulations. Examples of security tokens include tZERO's TZROP, Swarm Fund's SWM, and Blockchain Capital's BCAP.

Security tokens are often used in Security Token Offerings (STOs) to raise funds for a project or business. They are more regulated than utility tokens, and are subject to securities laws and regulations.

Differences Between Utility and Security Tokens

The main difference between utility and security tokens is their intended use. Utility tokens are meant to provide access to a product or service, while security tokens are meant to provide investors with ownership or other financial benefits.

Another key difference is their legal status. Utility tokens are often unregulated, while security tokens are subject to securities laws and regulations. This means that security tokens are often more expensive to issue and trade, and can be more difficult to purchase.