What are digital securities?
Digital securities are investment assets - issued, governed and administered on distributed ledger technologies (DLT for short).
- "Wow, hold your horses!" Investment assets? On DLT?"
- "Okay, let's explain these in details."
Being an investment asset essentially means that an owner of a digital security is an owner of (or receives financial interest in):
equity in a company,
debt lent to a borrower,
commodities like gold or other physical resources,
real estate like an apartment,
art like a famous and unique painting
or other assets of value.
While the intangible form of digital securities are very similar, the difference is in the details. It is legal agreements that determine the unique characteristics of each digital security - same as with conventional private investment.
Digital securities are an updated version of traditional securities; like email is a better version of postal letters. But due to being "modern securities", digital securities are therefore regulated in most jurisdictions, especially when it comes to dealing with the public.
Being administered on distributed ledger technologies (DLT) means, that instead of a paper-tail, digital assets have both a paper trail (documentation, contracts, etc. - possibly also kept electronically) and possess an electronic record in a secure, consensus-based data registry. The records of the digital registry appear in the holders' wallets, like a stock certificate use to be issued to a shareholder.
The digital registry is created and updated through strict rules, with a full audit-trail of transactions. For example, we have complete transparency of shareholders at any given second.
The use of DLT for digital securities brings instant transactions, transparent governance or even real-time performance reporting.
Also, DLT practically means data never gets lost, and the standard documentation ensures recourse on any underlying assets, or being able to reclaim ownership even in case of an unlikely cyber security breach.