Investing in the crypto market is the major current and future trend, both in Brazil and in the world, but there are still people who are afraid of using cryptoassets to diversify their portfolio and do not understand the difference between tokens and shares, for example. In this article, you will understand the difference between these two types of investments and how cryptocurrencies are a great choice for your portfolio!
What are actions?
Shares are fractions of a company or organization that are distributed among the owners to represent their possessions. That way, adding up all the shares, you find the value of the company they represent. Many companies are defined as “publicly traded”, meaning that they have distributed their shares to be traded on the stock exchange. If the value of these shares increases, all owners have their shares valued and, in certain cases, can receive dividends.
What are Asset Tokens?
Tokens are created on existing Blockchains and can represent parts of different assets, from credit card receivables to digital artworks. They are easily negotiated using Smart Contracts technology. As tokens are able to represent any asset, they can be used as digital assets, shares in a company, access to certain projects and many other ways. It’s possible to tokenize just about anything, but it’s important to be clear that not everything pays off being tokenized. Tokens, especially Security Tokens, are often confused and compared to stocks, as they have their value tied to an asset that can be traded and have changes in their own value.
Equity: the similarity between tokens and shares
In traditional equity investments, a person can own part of a business by investing in its shares. Owning a stock is proof that you own a percentage of the company it represents. But why is it advantageous for companies to give up parts of their equity? The main objective of a company when offering shares is to raise funds. Depending on the stage of the business, the offering of shares can happen through brokerages, stock exchange or IPO. As stated above, by investing in stocks, you are owning the company. This does not mean that you directly own the physical or material objects that are part of it. Stocks are divided into two categories depending on what they offer: Common stock: Offers investors voting rights and dividends. However, common shareholders are paid after preferred shareholders, creditors and bondholders; Tokens can also represent the equity of a company and the right over it: they are called Equity Tokens. However, whoever owns a token is not considered a partner, but a holder. And, just like stocks, there are variations in Equity Tokens to represent the participation of companies in two different ways, both the possibility of remuneration and decision making.
After all, what are the differences between tokens and shares?
The main differences between tokens and shares are in the way in which both are traded, in the costs for the investor, in the presence of intermediaries and in the way in which they are launched on the market.
where are created
The first difference between tokens and actions is where they are created. Tokens are made using Blockchain technology, while shares are not. Due to the use of this blockchain, it is also possible to associate Smart Contracts that offer an even greater legal guarantee to the tokens.
proof of ownership
Proof of share ownership is usually done through a brokerage firm or directly at the company register. With tokens, however, investors themselves can retain ownership, as it is possible to store tokens in a wallet.
The difference between tokens and shares that stands out the most is the way in which the sale of these assets works. To sell shares, the trade needs to be brokered by a broker and sold on a stock exchange. Tokens can be quickly sold on regulated Security Tokens trading systems. Also, unlike stocks, token trading can take place 24/7. Shares can only be traded from Monday to Friday and during business hours.
Unlike shares, tokens have their transactions recorded on the Blockchain. This network stores all the most important information such as sender, recipient, value and date. And it’s immutable, so it can’t be rigged.
Currently, there is still some legal and regulatory uncertainty surrounding tokens, which is not the case for shares. This leads to more uncertainty for investors, but regulation is advancing more and more due to the popularization of tokenization across the world. Of course, you don’t have to choose between tokens and shares when thinking about your investments. It is important to diversify your portfolio to have more liquidity and not be too impacted during times of crisis. The advantage of choosing tokens as a form of investment is that you don’t need a large initial amount to start investing in them. Anyone, within their means, can acquire tokens. It is the true democratization of investments!
About the author
Daniel Coquieri is CEO of asset tokenization company Liqi Digital Assets. A technology entrepreneur, he was the founder of BitcoinTrade, one of the largest cryptocurrency exchanges in Brazil.