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What is a security token? Introduction of Security Token

Most people active in the field of crypto-token consider coin and digital currency to be the same. This is despite the fact that each of the mentioned items has its own function and they are completely different from each other. Tokens have different types and are used in different situations. By knowing the types of cryptocurrency, you can have a better understanding of it and invest in them more intelligently. Security token or securities token is one of the challenging topics that is very important. These assets in the form of legal are built and help increase system and data security. But what exactly is Security Token and what are its features? In this article, we will introduce the securities token and everything you need to know about it. Therefore, we invite you to continue with Valex exchange.

What is Security Token?

A security token is a digital asset that derives its value from a tradable external asset. These currencies are subject to federal laws governing security, that’s why they are also known as security tokens. Security Tokens are required to comply with all of these regulations or else with Heavy fines And they will even face the destruction of the project. Security Tokens have very high liquidity, that’s why transferring their value is not a difficult task.

In terms of economic performance, securities tokens are similar to stocks and derivatives. In fact, these tokens are the digital form of traditional stock and securities investments that represent the real value of assets such as stocks, companies or real estate. Security Tokens are not like other digital currencies that are used for daily transactions. In other words, users cannot use these currencies to pay for the purchase of goods or services.

How does a security token work?

Securities tokens are created as investments, and users who own these tokens will share in the company’s profits and losses. In fact, whenever the company producing Security Token incurs profits, the profits are given to its owners in the form of additional tokens. Blockchain has made it possible for businesses to start voting on their company and allow investors to participate in decisions.

A digital currency token if it can Howie’s tests (howey) will be considered as a security currency. These tokens derive their value from an external asset such as a company or stock. A security token is recognized as a security asset and therefore must be approved by federal securities laws.

Security Tokens contain cryptographic data that is protected by three different ciphers. In fact, you must have these three passwords for authentication, otherwise you will not be able to access its information. In general, the following three types of codes are used to store securities token information and increase its security:

  • Static password: This password is stored and transmitted by the security token communication protocol. The static password is not seen by users, which increases the security of users.
  • Dynamic password: This type of password includes one-time codes that work in rotation and expire after a short time.
  • Challenge-response: This is an encrypted password used to prove ownership.

Types of securities tokens

Security currencies are custom made and can be completely different depending on a company’s needs. Therefore, if you intend to create a security token, you should familiarize yourself with its types. Each of these tokens has its own characteristics and is used in different situations. In general, the types of Security Token are:

Types of security tokens
  • Connected tokens: These security tokens are designed in such a way that users must physically connect the token to the system in order to use it. Among the well-known examples of connected tokens are: Smart card or fob (fob) pointed out.
  • Disconnected tokens: Disconnected tokens are tokens that do not need to be physically connected to the system. That means you don’t need to connect to the system or use a special card to log in. The disconnected token can refer to smartphones that are used for multi-factor authentication.
  • Contactless tokens: Contactless tokens are completely different from previous models. Users do not need a physical connection or access code to use these tokens. Access to these tokens is done wirelessly. Good examples of these tokens are Bluetooth and NFC.

We recommend that you read the article What is a Token?

What are the benefits of Security Token?

The use of securities tokens has many advantages. These tokens can be used for Physical authentication Instead of using digital authentication. This will increase the security of the system. In fact, when you use security currencies, hackers cannot access it because security tokens are not connected to an online network only. Security Tokens use various protocols to increase system security and are highly flexible.

Common passwords are easy to guess and allow hackers to gain access to the currency system. But the working process of security token is completely different because it uses three different passwords to increase security. In addition, securities tokens with their various capabilities also strengthen the authentication process and users can Multi-factor authentication (MFA) in their agenda.

Examining the disadvantages and weaknesses of security tokens

Security tokens are launched with the aim of increasing data and system security and are successful in this field. However, these tokens have a series of disadvantages and weaknesses that are worth knowing. The main weakness of these tokens is their physicality. Any physical device can be lost or stolen. Therefore, it cannot be said that Security Tokens provide 100% data security.

If security tokens are stolen, hackers can use it to hack into systems, accounts, and access confidential information. On the other hand, these assets need three security codes that we mentioned in the previous sections. If you lose one of your passwords, you have to use secondary authentication methods, which are quite time-consuming and difficult. So, if users cannot protect the security password well, it will be a problem for both themselves and the system.

Comparing Security Tokens with Utility Tokens

In general, cryptocurrency tokens are divided into two categories: securities and utility. Most people are familiar with functional currencies such as Bitcoin, Ethereum, etc., but they do not have a detailed understanding of security tokens. In this section, we examine these two tokens from different aspects so that you can have a complete knowledge about them.

Comparison of securities token and utility token


A security token is a type of investment contract that represents the legal ownership of physical or digital assets verified by the blockchain. But utility tokens are established with the aim of funding ICOs as well as contributing to the blockchain’s internal economy and providing an investment opportunity for crypto users.


Security Tokens are designed in such a way that if the value of the company or asset increases, the value of the token will also increase. But in utility tokens, there is no such thing and its value depends on various factors.


Security tokens are legal and have a lot of security, so they are less likely to be hacked by hackers. But Utility Tokens, due to their illegality, have provided the necessary conditions for fraud and creation of fake currencies to earn money by hackers.

Follow the law

Utility tokens are completely illegal and are not regulated by any body or government. But security currencies are completely legal and must pass Hani tests. It should be noted that if the securities tokens disobey the rules, they will face severe punishment.

Securities token, a safe investment

Securities token, which is also known as Security Token, is one of the types of cryptocurrency that has many uses. These assets are legally created by companies and have different types. Security tokens have many advantages and disadvantages, and the purpose of their creation is to help increase the security of the system and sensitive data. In this article, we fully introduced the securities token. We also checked what the most important differences between the functional token and the Security Token are. I hope this article has helped you to have a better understanding of these assets. If you have any questions related to Security Token, we will be happy to share them with us in the comments section.

What is written securities token? Introducing Security Token for the first time on Wallex blog. appeared.


hello my name is amir; i love bitcoin and dogecoin 🎯

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