By Chris O’Neal, CPA, MBA
When you think of blockchain securities, the first thing that probably comes to mind is cryptocurrencies like Bitcoin or Ethereum. You’re not wrong.
These are some of the most popular types of blockchain securities in existence. In fact, a lot of people consider these currencies to be digital gold, especially since they typically have a finite supply. But did you know that there is more than one type of blockchain security? There are actually four main categories, and this article will explain each of them in an easy-to-understand manner.
Equity is probably the most recognizable type of security, and it’s basically a share of stock in a company. By buying equity, you are gaining partial ownership of the company. This means you have the right to vote on certain corporate matters, like electing the board of directors or issuing more shares. You may also be entitled to dividends paid out by the company based on your percentage ownership.
If you want to invest in equity blockchain securities, there are numerous options available. Traditional exchanges and initial coin offerings (ICOs) are the two major avenues.
Debt is a security form representing a debt owed by the issuer to the holder. Debt securities can be issued by corporations, governments, or individuals. Examples include bonds, loans, and mortgages.
Debt security generally has a fixed maturity date and an interest rate that defines how interest payments are calculated and paid out to holders. Debt securities are often used to raise capital for companies or governments to finance projects or buy back shares.
The third type of blockchain security is called hybrid security. As the name implies, this security is a combination of both debt and equity (stock).
A great example of this type of security is a convertible bond. Convertible bonds are notes that are issued to investors and can be converted into equity at a later time.
The final type of blockchain security is known as asset-backed security. Asset-backed securities are often issued by banks and other institutions. These entities may hold a portfolio of mortgages, credit card receivables, or auto loans.
There are four main types of blockchain securities: equity, debt, hybrid securities, and asset-backed securities.
Equity blockchains give investors the chance to buy and sell stock in a company like any other stock exchange.
Debt blockchains allow investors to lend money and receive interest payments on a loan.
Hybrid blockchain security combines features of equity or debt and other products like currency or commodities futures. Hybrid blockchains can be really complicated because they involve a mixture of securities, which will be worth different amounts depending on what happens in the future.
Asset-backed blockchain securities use assets like real estate or precious metals as collateral for loans, just like houses can serve as collateral for mortgages.