March 21, 2019

A security is a financial instrument that holds monetary value. It represents some form of ownership of a publicly traded corporation or a credit with a government body/bank. This ownership can also be represented with an option. Some examples of securities include stocks, bonds, options, and shorts.

In order for a financial instrument to be considered a security, it must be interchangeable with another equal security, and it must be negotiable. For this reason, a tangible US dollar is not considered a security, but one dollar’s worth of stock is considered a security.

There are two broad kinds of securities: equity and debt. An equity security entitles the holder to some piece of the company’s assets. These securities come in the form of stocks. A stock in a company is a direct ownership of that organization. It’s a positive asset with negotiable value. A debt security represents money that has been borrowed and must be repaid. Government-issued bonds are debt securities because, in order to acquire them, you must temporarily loan money to the governing body. You’ll be paid back after an agreed amount of time with a predetermined amount of interest. Equity securities are much less stable and predictable than debt securities, but they often have a higher payoff.

One of the biggest problems with ICOs is that they attempt to function like securities, but they come with none of the benefits or safeties that are inherent in securities. If approved by the SEC, securities must follow certain regulations and are beholden to  SEC oversight. STOs, on the other hand, are SEC-certified securities that function much like ICOs, but with digitized ownership rights built in.

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