What is the difference between security tokens and utility tokens?

Security tokens are like stock market stocks. Utility tokens on the other hand are cryptocurrencies that are used for a specific purpose or service.

A security token represents a security or asset ownership. A security token gives you legal ownership rights to the companies, products or platforms where it is used.

Utility tokens do not provide ownership rights to its network participants. For example, ether is a utility token but it doesn’t give you ownership rights to the decentralized Ethereum network. 

Utility tokens must have one or more specific real use in the network it circulates. Ether is used to pay gas fees therefore it has a network specific use for ether tokens.

It is easier to list utility tokens in exchanges than it is to list security tokens. Because exchanges need approval from local authorities to list security tokens. 

Security token traders will most likely come under the same laws that rule other types of securities such as stocks. Hence, trading security tokens will make you a lot more binding to regulations than trading utility tokens.

Features of a Security Token:

  • Represents ownership of the network / company
  • May or may not have any use in the network / platform
  • Comes under existing regulatory framework

Features of a Utility Token:

  • Doesn’t represent ownership of the network / company
  • Must have one or more specific use in the network / platform
  • Has no existing regulations in most countries

Some portions of this post were taken from this post: https://trybe.one/difference-between-utility-tokens-and-security-tokens/ (I am its original author)