Digital Securities Vs Physical Securities: Which Is Better?

Digital securities are the electronic form of financial securities such as stocks, bonds, etc

Digital securities are the electronic form of financial securities such as stocks, bonds, etc. They are also known as security tokens. Physical securities, on the other hand, are financial securities that are in the physical form such as equity contracts, cash, etc. These were used to buy and sell equities before security tokens were introduced and are relatively less popular now.

As a beginner, it is quite easy to be confused about these two forms of financial securities.

However, to help you get further clarity, here’s a brief comparison between digital securities and physical securities -

  • Digital securities are more convenient

Since buying financial security with just a few clicks is way more convenient than physically buying an equity contract, digital securities have made the capital markets much more accessible to the masses. Buying securities in the olden days meant you receive a physical copy of your contract/transaction receipt. This increased the time taken to buy and sell various financial securities and also made it mandatory to maintain a paper trail of the same.

  • Physical securities are typically more expensive

As many of the public capital markets are regulated, physical securities require a costly intermediary structure to maintain records and coordinate with the brokers. Digital securities, however, make this easy on the pocket as they have the compliance code programmed into them. This removes the need of maintaining the vast data physically and thus brings down the cost of transaction for all the parties involved in the transaction, i.e., the broker, the investor, the security issuer, and the regulatory body.

  • Digital securities are more accessible

The number of investors present in the capital markets today is much more when compared to the situation in the era of physical securities. The main reason behind this is the increased accessibility that digital securities are capable of providing. During the era of physical securities, you would generally need to take the time out of your daily schedule, visit the broker’s office, sign the documents and place a request to buy/sell various financial securities. This made the process highly time-consuming and thus along with a few other factors, decreased the number of people who invested in financial capital markets.

  • Physical securities have fewer fail-safes

Since digital securities are coded and run on blockchain technology, they have various compliance codes directly programmed into them. This makes it easy to avoid any transaction that has been initiated with wrong information. Blockchain technology also provides the required redundancy in data to avoid manipulation of the same from one source or have the transaction details deleted or lost. Digital securities are also easier to track and due to their inherent operational structure, it is virtually impossible to have them stolen. The same, however, cannot be said for physical securities as they are almost impossible to track and relatively prone to data manipulation.

We hope this article helps you understand the difference between digital securities and physical securities.

Read More :

A Beginner’s Guide To Digital Securities

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