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ICON, a platform that is aimed at providing blockchain interoperability, has announced that it is introducing a new security token standard. The new IRC16 specification will allow token creators to issue security tokens—a special type of blockchain token that represents certain assets and investments.
Unlike Bitcoin, security tokens don’t derive their value from blockchain activity. Instead, security tokens represent ownership of assets like real estate, precious metals, or corporate equity. And whereas ICO tokens have faced regulatory issues over the past year, security tokens are seen as very promising due to their capacity to work within regulations.
The IRC16 Standard
Like other initiatives of its type, ICON’s new standard is meant to facilitate regulatory compliance. IRC16 is intended to simplify security token creation, support smart contracts that manage trading, and, above all, help token issuers comply with rules and regulations. The standard has four important features:
- Check For Token Transfer, which can verify whether those who buy and sell tokens have passed KYC and AML checks, and can put limits on participation.
- Token Control By Operator, which allows tokens to be taken control of when keys are lost or fraud occurs, as demanded by some regulations.
- Document Management, which manages the legal documents that pertain to the rights and obligations of participants.
- Partition, which allows token issuers to create “partially fungible tokens” and introduce lock-up periods into those tokens.
In addition to explaining the technical aspects, ICON has expressed its hope that security tokens will “increase the liquidity of high-value assets” by dividing them into easily tradeable tokens. Eventually, ICON says, this will “expand the size of existing investor pools”—turning securities into a more accessible market.
Security Tokens Elsewhere
ICON is just one of several platforms that have added support for security tokens. Ontology has recently added a similar standard in a major capacity. Meanwhile, on Ethereum, the ERC-1400 range has accumulated many different security token specifications. NEO has expressed interest in security tokenization as well.
Additionally, there are several blockchains that are dedicated exclusively or primarily to security tokens, such as Swarm, Tokeny, and OpenFinance. Regardless of the platform, security tokens are coming out swinging in 2019, and several major sales are scheduled for the coming months or are already underway.
But although security tokens are growing quickly, the model is controversial, as only accredited investors are legally allowed to own securities. The fact that blockchain technology is being used to exclude those who are not wealthy investors is often seen as a violation of cryptocurrency’s fundamental promises: financial inclusion and freedom.
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