A token is a unit of account that is not a cryptocurrency and is intended to represent a digital balance in some asset. In a sense, it performs the function of a "substitute for securities" in the digital world.
History of the term
The term "token" has existed for at least several centuries. In fact, the token is a local substitute for money.
For example, a game currency or a token in the subway. Having a Moscow Metro token, you cannot use it in St. Petersburg. This is the main principle and difference from money and cryptocurrencies (payment tokens), which have a wider range of possibilities.
Cryptographic tokens have not yet been settled in many countries. Along with the great interest in tokenization, we have major flaws in the existing legal framework. Governments and regulators strive for innovation, but try to maintain control and the value of the national currency.
On January 1, 2021, the law "On Digital Financial Assets" will come into force. DFA turnover in Russia have been legalized.
Types of tokens
At the moment, there is no unified token classification system. Nevertheless, steps in this direction are being taken by the American Securities and Exchange Commission (SEC) and the Swiss Financial Market Supervision Service (FINMA).
The classification of tokens in the legal field is based "NOT" on technical characteristics, but on the PURPOSE of using this token. Thus, tokens are divided into two large categories.
Security token is a digital analogue of securities that certifies ownership and gives the owner the right for their investment interests. In fact, these are digital assets subject to federal securities laws, and a cross between tokens and traditional financial products.
Also, security tokens can be described as a "programmable property right", which can apply to any asset - public or private capital, monetary obligation, real estate, and so on. These rights are written in the code, and the tokens themselves are traded on exchanges.
There is a Howey-test (link), developed by the US Supreme Court to determine whether transactions in certain tokens can be qualified as an "investment contract". If the test gives a positive result, these transactions and tokens fall under the requirements of the law "On Securities" and the law "On Securities Exchange". In this case, these tokens are considered securities and must function in compliance with certain disclosure and registration requirements.
The Howie test is often referred to by American regulators when, in the absence of a clear regulatory framework, they want to prove that a particular cryptographic token is a security. According to this test, a transaction is classified as a security if the investor answers yes to all four questions:
- 1. Is there a fact of investing money?
- 2. Is there an expectation of profit?
- 3. Is the money invested in an ordinary enterprise?
- 4. Does any profit and its size depend on the efforts of a counterparty or a third party, not an investor?
Utility tokens are service tokens that give access to the company's services or products. The defining characteristic of these tokens is that they are not intended for investment.
Utility tokens are internal tokens of the protocol itself, which give their owner unique advantages in using the application or network. For example, the BNB token reduces commissions for trading on Binance. The BTT token gives access to the advanced functions of the BitTeam p2p exchanger and reduces the exchange fee.
Custom tokens issued within the Decimal network may belong to different categories. It all depends on the company that issued the token and the conditions that it provides to its users and investors.