If you’re thinking about blockchain investing, chances are you have heard of Utility and Security tokens. The media is constantly buzzing with news and speculations about possible ICO regulation or whining about the lack of it. Once you dive deeper into the topic, warnings about the risks and dangers pop up everywhere you look. So why should I buy tokens? Are they an investment? And how do they work?

As we are getting closer to launching the Monetizr token sale, we get asked many questions. Over the next week or so, we’ll take a look a deeper look at the overall market, the differences in utility vs. security token investing, why we chose to launch our Security token sale, and more.

Have specific questions you want us to answer in one of those articles? Give us a shout (as always, Telegram or Reddit is best, but feel free to connect with us on any of the socials, comment below, or visit www.monetizr.io).

Let’s start with the basics.

Utility v. Security Tokens

The two major token groups you should know are utility and security tokens.

Utility tokens give you access to a product or a service provided by a company. In many cases, historically utility tokens promised to deliver a product in the future, where utility token holders would be able to exchange them for the company’s services. Imagine utility tokens as poker chips for a casino that often hasn’t been built yet. The total supply is fixed, which is why the token value may grow over time as the demand for product/service increases.

Fraud, cyber-attacks, price volatility on the second market, as well as confusing regulatory framework are all real risks when dealing with utility tokens. Most importantly, they can be launched by just about anyone with an idea and a whitepaper — which means, this is something to consider when “investing” money into untested ideas (without proven traction, customers, revenue, or other indicators). A benefit of utility tokens is that can everyone can participate and support the vision of the company and the problem being solved. However, there are many questions around the regulations and the utility token challenges.

Security tokens, on the other hand, can — but are not required to — represent equity or essentially a piece of a company’s future success. Security token holders are entitled to ownership rights that give them a stake in a company’s assets. Of course, these are harder to analyze in some cases, which means it’s still up to the person considering purchasing security tokens to do the due diligence needed to assess a business (beyond the idea, beyond the whitepaper — but against indicators like monthly active users, revenue, team, growth, and others).

UPDATED 4/14/2018: You can read more about the definition of a security in this paper issued by the American Bar Association (thank you for the reference, Paul Gambill — updated above).

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Are Security Tokens a Safer Bet?

To put it in simply: maybe. If a company considers its token as a security, it must be registered with the Securities and Exchange Commission. If it passes the Howey Test, these tokens are, in fact, investments and act as such, at least legally. It’s a widely controversial topic, but regulatory bodies globally are working together on it — and there are benefits to that.

Security tokens issued under Regulation D, Regulation S, Regulation A+, and Regulation Crowdfunding are cheaper and faster than conducting an ICO. They also have the potential to provide legal certainty and lower the risks involved in investments. In short, they connect the old world of traditional equity with its modern blockchain-based version.

These are all reasons that play into why Monetizr determined the Security token sale is the best option for our business (more on that in the follow-on articles — check back soon).

So what should you do?

Whether you consider it an investment or an experiment — don’t spend any more money than you can afford to lose on tokens — or on anything else. If you meet and like a founder with a good idea — and a company with an actual product, customers, and revenue — take a closer look. There is plenty of excitement, and most importantly, opportunity.

If you want to stay updated on Monetizr’s upcoming security token sale, join us on Telegram — or visit https://www.monetizr.ioto find out how you can get involved.