People are looking at Security Tokens Offerings (STOs) as an alternative to Initial Coin Offerings (ICOs) as regulatory groups start passing stricter guidelines. Even big companies like NASDAQ and Coinbase are experimenting with STOs.

Investopedia says that 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 issued by Security Token Services (STS), which authenticate the person's identity.

Security tokens are considered to be a more secure way to access a sensor network system such as a bank account, as they add an extra layer of security. They may be used in place of or in addition to a password to prove the owner's identity.

Security tokens store data in order to authenticate the owners' identities. Some store cryptographic keys, a system used in cryptocurrency services such as Bitcoin, but the key must be kept secret. Some use time-sensitive passwords, which are coordinated between the token and the network and reset at constant intervals. Others use biometrics such as fingerprint data to ensure that only the owner of the security token can access protected information.

Securities tokens serve as a legal right to ownership of the intrinsic worth of the issuers. They give noticeably higher value to the owner of the token, while perhaps diminishing the uncertainty.

Distinctly, we currently have various methods to determine the intrinsic worth of a security; residual income method, discounted cash flow, are universally trusted processes. The meaning of intrinsic worth of a token is that it is worth something at the time of issuance, as per the advantage it gives the holder, notwithstanding of inherent future value which is associated with the token.

Security tokens are comprised of a number of smart contracts. A smart contract is a simple program designed to automatically execute once a specified criterion is satisfied.

Smart contracts dictate how the token can be bought, sold and traded in a compliant way, and because they are executed on the blockchain the transactions are transparent, traceable and immutable. A correctly coded Security Token makes it virtually impossible for anyone to buy, sell, or trade the security in a non-compliant way.

The promise of global liquidity is perhaps the security token’s most valuable trait. Security Tokens have the ability to represent fractional ownership of an asset and to be traded on global security token marketplaces and exchanges – two things that are virtually impossible for traditional securities.

Traditionally illiquid assets like real estate or fine-art can become liquid for stakeholders by issuing asset-backed security tokens that represent a stake in the underlying assets.

And because the tokens can be listed on global markets, the security can be made available to global investors that are eligible to buy, sell, and trade the security in a compliant way.

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