Differences Between Non-Fungible Tokens and Security Tokens

The world of Cryptocurrency, blockchain and NFTs is booming. Have you ever heard about fungible, non-fungible, and security tokens? These all are the tokens of blockchain and Cryptocurrency. The term crypto tokens refer to a special virtual currency token. These tokens represent fungible and tradable assets or utilities on their blockchains. Crypto tokens are used for fundraising for crowd sales, but they can serve as a substitute for other things. These tokens are usually created, distributed, sold, and circulated through standard ICO (initial coin offering) processes, including crowdfunding exercises to fund project development.

What are Tokens?

Tokens are used to represent ownership of the blockchain. These are units created by blockchain-based organizations and projects on top of existing blockchain networks. While they usually have a high level of compatibility with the network’s Cryptocurrency, they are a different class of digital assets. Tokens are created by platforms that build on top of blockchain protocols, whereas cryptocurrencies are the native asset of certain blockchain technology. The native token of the Ethereum blockchain, for example, is Ether (ETH). Although Ether is the native coin of the Ethereum blockchain, numerous other tokens also use the Ethereum network.

Difference between NFT and Security Tokens 

NFTs 

Cryptocurrencies are fungible, which means they may be purchased and exchanged for one another. One Bitcoin, for example, is always worth the same as another. Similarly, one Ether equals another Ether unit. Cryptocurrencies are well-suited for use as a dependable method of exchange in the digital realm due to their fungibility.

Non-fungible tokens are a step beyond the seeming simplicity of Bitcoin. Modern financial systems are complex trading and financing systems for various asset kinds, such as real estate investment, lending agreements, and artworks. 

NFTs are a step ahead in rejuvenating this infrastructure since they allow for digital representations of physical assets. NFTs are unique digital assets that may be utilized to represent both tangible and intangible features. NFTs may be purchased in several current currencies. Non-fungible tokens are referred to as such for obvious reasons.

For example, in the NFT art market, if you have a collection of 10,000 artworks, each one will be unique owing to its own attributes. NFTs in the real world include real estate titles and anything that cannot be replaced with another of the same type. Because there can only be one NFT, it cannot be divided into smaller tokens.

Security tokens

• Security tokens, however, are easily divisible; products may be divided into units as long as their value remains constant. Each token can be exchanged for another token of the same type and value. NFTs are unique and non-transferable and cannot be exchanged for another non-fungible token of the same type.
• Owners of security tokens do so as an investment. Securities are offered to investors in return for equity, interest, dividends, or profits to represent ownership in an asset that provides income or is expected to rise in value.
• Token-based authentication relies on a device that creates a random number, encrypts it, and then transmits it to a server. The server then responds to the device with an encrypted message that can only be decoded locally. To make the system more hack-proof, we utilize the device for each authentication instead of storing sensitive user data on the server. 
• Even though passwords and user IDs are still the most common way to prove who you are, security tokens are a safer way to keep networks and digital systems safe. Passwords and user IDs aren’t always safe, which is a problem. Threat actors keep improving their methods and tools for cracking passwords, making them weak. 
• During a data breach, password data could also be viewed or stolen. Also, passwords are often easy to figure out because they are based on personal information that is easy to find. On the other hand, security tokens only use a physical or digital identifier by one person. Most forms are easy to fill out and easy to use.

Wrap Up 

NFTs and security tokens are useful in the world of blockchain and Cryptocurrency. Tokens may be used in several blockchain transactions, and knowing what you are getting is essential before you spend your earnings on them. NFt tokens are considered valuable digital objects, whereas security tokens are regarded as owing rigorous control, which is safer than utility tokens.