A security token is a portable device that authenticates a person's identity electronically by storing some sort of personal information. The owner plugs the security token into a system to grant access to a network service. Security tokens are considered to be a more secure way to access a sensitive network system such as a bank account, as they add an extra layer of security.

The fact that the security token lives on a blockchain gives it many more features than a stock certificate. Smart contract systems can incorporate regulations within the token itself. Know-your-customer rules, for example, can prevent someone who isn’t qualified from buying the token. The efficiency of blockchains and the elimination of third parties, also make security tokens more efficient ways to raise capital and to invest in secondary markets.

They were a buzzword in 2018 and were a promising alternative to ICOs which were tainted because of the overwhelming amount of scams. However, Dr. Craig Wright doesn’t buy into this opinion.

He even went ahead to question the legality of the projects. He says that both regulatory bodies and issuers should be able to raise concerns. Many responses on the original Tweet asked followup questions for this. The screenshot below shows a typical example of the conversations that followed.

Dr. Wright sort of agreed with one of the followers and said:

“Ok, now we are totally agreed I guess. My point was the same. Can’t call an STO a scam just by underlying the “token”. And of course, it’s all about company shares as we have experienced in the traditional market. That’s what we need; an effective database with a powerful interface…”

In the eyes of critics, security tokens violate many of the principles underpinning the cryptocurrency community. Securitization means centralization and identification. Big institutions from government regulators to investment banks will exert control over security tokens and the broader crypto markets. Not least of these, the KYC requirements could weaken the pseudo-anonymous spirit of the blockchain community.

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