Aashish Sharma

@AshishSharma31

Top 5 Things to Look Out for Before Investing in a Security Token

Photo: chainsulting.de

The rates of bitcoin increased in 2017 and reached the highest level of 1700% in a single year. It was the perfect year for everyone who invested in digital currency before 2017. It was the signs that people can generate a reasonable amount of profit by investing in bitcoin and blockchain technology. However, the people who missed the opportunity or invested in the bitcoin late still do not know that whether they would be able to generate any profit from it or not.

There is a complicated global computer system that is used to manage all the applications that are used to run blockchain technology. That is why most people find it different to understand due to which they are unable to integrate blockchain with aspects like a business, money making, and global money transfer. There are many people who are interested in investing in security tokens, but they do not know whether it would be the right decision for them or not. If you are serious about investing in tokens, here are a few important things you need to consider.

What is a Security Token?

The complete definition of a security token is quite complex. Indeed, in the stock exchange system, securities are what is known in French as securities. That is, just about any stock that can be bought or the sold on the stock market, whether it’s a company share, a debt, or some derivative.

In the world of crypto-assets, a lot of people make the mistake of linking names to the tokens without any connection to their characteristics, often simply by misunderstanding the definitions recognized by the stock market.

In this case, there are many tokens classified today as security tokens by various blogs and journalists. That is to say, if we believe this name, as well as the definition of a security, these “token-values”, represent either a title of ownership (a part of society) or a title of debt (a debt to society).

How Does a Token Gain Value?

As William Mougayar points out in his Medium article, there are three tenets to token value and they are:

  • Role.
  • The Features.
  • Purpose.

These three are locked up in a triangle and they look like this:

Every Token role contains its own purpose and set of features which can be described best in the following table:

But it is neither the first nor the second case: security tokens confer no share of society on their holders, and they represent no debt to the creator of the crypto-asset.

The terms used by the vast majority of journalists and bloggers are therefore technically completely false.

However, it is not entirely without reason that this name appeared: indeed, it is notably following the decisions and comments of the SEC (Securities and Exchange Commission), an American entity responsible for the regulation of the Stock Exchange in the United States, that various chips have been compared to conventional securities.

So let’s say these tokens are value-tokens if you want to use the original term. We must still establish a well-defined list of their characteristics so as not to be mistaken about what we buy.

In this case, these are tokens:

  • Whose value depends on the work done by the person or persons who issued them;
  • Offering no guarantee of achievement of the desired objectives, nor any guarantee of value,
  • Having very often no use as long as the objectives are not reached.
  • Conferring on the holder no rights in the decisions of the issuing entity.

These token securities have no characteristics in common with corporate units or debt securities. It would certainly be more correct to call them investment tokens or investor tokens since this is usually their only function: to put money on an asset hoping that its value will increase later.

However, it remains true that some countries like the United States seem to want to apply to these tokens the same laws that they apply to traditional securities. The name of token-value is therefore not completely meaningless. It’s just a matter of being extremely vigilant when a chip purports to match the characteristics of traditional securities: you should not think that holding KuCoinShares gives you the right to take part in KuCoin meetings, for example.

1- Consider token as a code

Tokens that are issued using the Ethereum platforms are similar to a piece of code that leads to the formation of the smart contract. In the code, there is a complete list of people with their wallet address as well as the balance of their tokens. During the transfer of tokens, the balance in the tokens will be changed. In the smart contract storage, all transactions will be recorded. You have to assure that the token code and platform you are selecting is reliable and authentic.

The functionality should be easy to use and understand. Check the interface of the token because it will give you the perfect idea that whether you will be able to use the services or not. Make sure that you do not invest in security tokens which you cannot understand because it will create issues for you in the long run and you will not be able to get the services that you invested in.

2- Type of token

One of the most important things you have to consider is the type of token you will get. According to the Security Token Conferences, in the business field, you can gain two types of profit by investing in tokens. With the security tokens, you can get the assurance that you will generate a profit in the future. Make sure that the type of security token you will select is profitable and the team will surely distribute all the profit that it has generated.

You have to pay attention to the type of services a token is providing. After that, you have to conduct your own research to find out that whether such services will be beneficial in the coming future or there are other technologies available. It will give you a perfect idea regarding the type of security tokens you should invest in.

3- Total Token supply cap

Make sure that you check the supply cap of the tokens which you have selected. You should know that there are some developers who will not share the supply cap of the tokens. In this situation, you will take a huge risk by investing in such type of tokens because things can get confusing for you if you do not generate any profit. If you cannot find the supply cap of tokens, it is better than you consult the token developers because that is the only way you can get the idea of the profit you can generate.

To understand Token Sales Structure read this article:

There are some developers who would not share the information related to the supply cap which show that they are not reliable. This is the reason you should not invest in such types of tokens. Always invest after getting complete information because it is a major investment you are making and you cannot lose a decent amount of money.

4- Listing in exchange

Most people do not invest in tokens because they want long-term profit. You should know that the participation of ICO is commonly based on speculations and they have the goal to sell their token as soon as possible at a rate 3 times higher. That is why considering the listing exchange will give you the idea about the rates and popularity of the token. Investing in the token with higher rates will increase your chances of generating more profit.

As well as you have to check the previous reviews and ratings of people who have already invested in the particular token. It will give you the idea of whether the demand for the token is increasing or not. If the demand of the token you have selected in rapidly increasing, you can buy it immediately because as long as the demand is increasing the profit you can generate will be increased as well.

5- Value of token

Do not forget to consider the value of the token. You should not just trust the future promises that token developers are making. Assure that the token already has some value in the market and after that, you should invest in it. You can consult different investors to get a clear idea about the value of tokens which you are planning to invest in. It is not only the present value you have to consider. You have to assure that the security token you have selected will be profitable in future as well.

Select some of the top tokens for investment. It will increase your chances of generating more profit. In case you are confused and it is getting hard for you to select the best type of tokens the best solution is getting some advice from the experts. They will let you know that which type of tokens are the best for you to assure that you can get the profit that you need in the long run. Make sure that you wisely select your tokens for better results.

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