What Are Digital Securities? (And Why They're Not Crypto)

Hi, everyone. Welcome to Module 1, Episode 1. What are digital securities and why they're not crypto? Welcome to Old Men, New Money. I'm Douglas Borthwick, and today we're going to talk about something that Wall Street keeps getting wrong. Digital securities. Here's the thing that drives me crazy. I spent four years as chief business officer at INX, where we did the first ever SEC-registered digital security offering. We raised $85 million from over 7,000 investors across 74 countries. And you know what? People still ask me, "Doug, you're in crypto, right?" No.

I'm into digital securities, and there's a massive difference that could make you millions or cost you millions. So let's clear this up once and for all. Here's your 30-second version. Digital securities are blockchain-based representations of actual securities. Stocks, bonds, real estate, private equity that are regulated by the SEC. Cryptocurrencies like Bitcoin and Ethereum are not securities. They're commodities or currencies, depending on who you ask. Security tokens combine the innovation of blockchain with the legal protections of traditional securities law. Everything else you're hearing is noise.

Right now, as I'm recording this in October of 2025, we're seeing something remarkable happen. BlackRock's tokenized treasury fund just crossed $500 million. Galaxy Digital has tokenized their equity in Solana. INX has listed tokenized equities from back to finance. So you can now trade fractional shares of Apple, Microsoft, and Google 24/7 on a blockchain. And most people on Wall Street are still scratching their heads asking, "What's the difference between this and Bitcoin?" Well, let me tell you when this clicked for me. It was 2018, and I was running an FX business at TPI cap.

I'd spent years in foreign exchange moving billions of dollars a day across currencies at places like Morgan Stanley, Merrill Lynch, Standard Chartered, and we had sophisticated technology but everything was slow. Settlement took two days. Counterparty risk was everywhere. Then I started looking at blockchain, not because I thought Bitcoin was going to replace the dollar. I didn't. But because I saw how blockchain could solve the settlement problem, the custody problem, the transparency problem. But here's what I learned immediately. There's blockchain technology and then there's what you do with it.

And that distinction matters more than anything else. Let me break this down. In the blockchain world, there are really three types of tokens and people confuse them all the time. First, you have utility tokens. These are like arcade tokens. You need them to use a specific platform or service. Think of them like airline miles, but on a blockchain. You use them, they have a function, but they're not an investment. They don't give you ownership of anything. Second, you have cryptocurrencies, Bitcoin, Ethereum, Solana. These are designed to be digital money or platforms for applications.

The SEC after years of back and forth has generally said these are commodities not securities. You don't own a piece of a company when you buy Bitcoin. You're buying digital gold basically. Third, and this is where it gets interesting, you have security tokens. These are digital representations of actual securities. Stocks, bonds, real estate, equity, fund interests, private equity, these are regulated. They must comply with security laws and they offer you the same legal protections as traditional securities. Here's the problem. Everyone lumps these together and calls it all crypto.

That's like calling stocks, concert tickets, and dollar bills all the same thing because they're all made of paper. Now you're probably asking what determines whether something is a security. This is crucial, so pay attention. Back in 1946, there was a Supreme Court case called SEC versus WJ Howie Company. The court established a test for what constitutes an investment contract and therefore a security. It has four prongs, an investment of money in a common enterprise with an expectation of profits derived from the efforts of others. If something meets all four criteria, it's a security period.

It doesn't matter if you call it a token, a coin, or a digital baseball card. If it looks like a security, smells like a security, it is a security. And this is why Bitcoin and Ethereum aren't securities. No one is expecting profits from a company's efforts when they buy Bitcoin. There is no company, it's just digital money. But when you tokenize shares of Apple stock, that's a security. When you tokenize ownership in real estate property, security. When you create tokens that represent shares in a private company, you better believe that's a security.

Now here where it gets exciting, some people here regulated security and think that's boring. They think the innovation was an avoiding regulation, but they're dead wrong. When we were building INX, we spent two years going through the SEC registration process. It costs us millions of dollars and people thought we were crazy. Why not just do an ICO and an initial coin offering? Like everyone else, they said, well, you know what happened to most of those ICOs? The SEC shut them down. Billions of dollars and fines, companies gone, investors with no recourse because they had no legal protections.

Digital securities take everything that works about blockchain, instant settlement, 24/7 markets, fractional ownership, transparency, programmability, and combine it with everything that works about traditional securities, legal protections, regulated markets, investor safeguards. Let me give you a real example. Right now, if you want to buy shares in a private company, here's what happens.

You negotiate the deal, you sign a subscription agreement that's usually 50 plus pages, your money sits in escrow, legal teams verify everything, transfer agents update the cap table, you get a certificate or ledger entry, total time, 30 to 90 days costs, tens of thousands in legal fees. With digital securities, the entire process happens in minutes. The smart contract handles the compliance checks, settlement is instant, the cap table updates automatically, cost, a fraction of traditional methods. Here's the kicker. You still have all the legal protections. The SEC still oversees it. If something goes wrong, you have recourse.

Let me give you examples from companies I've actually worked with or advised. INX Limited, that's where I was chief business officer. We did the first SEC registered security token offering. We raised $85 million by selling security tokens over actual SEC registered securities on a blockchain. Investors have all the protections of traditional securities, but they trade on a blockchain platform 24/7. 7,200 investors from 74 countries participated. Then we acquired a broker-dealer and a transfer agent. We integrated the entire stack. Issuance, trading, custody, all in one ecosystem. We built the infrastructure that other companies now use.

Backed Finance listed on INX. They tokenized over 160 different securities, stocks, ETFs, bonds on the chain. These aren't synthetic derivatives. These are real securities held in custody represented by tokens. Want to trade fractional shares of Apple at three in the morning? You can do that. Galaxy Digital just tokenized their own equity in Solana. This is Michael Novogratz's company, a publicly traded corporation, putting their NASDAQ shares on a blockchain. Why? Because they see where this is going. 24/7 trading, instant settlement, global access.

I'm an advisor to companies like Treasure Experience, which raised capital through a digital security offering on INX to fund treasure hunting expeditions. That's exciting. Investors get a share of any treasure found. That's a use case that traditional securities offerings could never have supported efficiently. Magic Circle Technology, another company I advise, is bringing digital securities issuers from Asia to U.S. platforms. They're meeting the demand from Japanese and South Korean investors who want access to U.S. investment opportunities in tokenized form. Let's talk numbers because this is happening faster than people realize.

The tokenized treasury market alone is over $2.2 billion as of October 2025. BlackRock's BUIDL Fund has $530 million. Franklin Templeton's tokenized fund has $410 million. Over $30 billion in real world assets are now tokenized. The digital securities market is projected to reach $16 trillion by 2013. This isn't coming. It's here. Now, I'm not going to stand here and tell you this is all sunshine and roses. There are real risks. Regulatory uncertainty is real. The rules are still being written. What's allowed today might not be tomorrow. What's banned today might be approved tomorrow. Technology risk is real. Smart contracts kind of bugs.

Blockchain networks kind of issues. You need to understand the technology you're using. Liquidity risk is real. Just because something is tokenized doesn't mean there's a market for it. When I was at INX, we saw this firsthand. Many digital securities have very thin trading volumes. Custody has unique considerations. Here's something critical that most people get wrong. Unlike Bitcoin or Ethereum, if you lose your private keys to security tokens, you don't lose your securities forever because there's a transfer agent who knows your identity. The issuer can freeze yield tokens and reissue new ones to a new wallet address.

This is actually one of the major advantages of security tokens over pure cryptocurrencies. You get blockchain benefits with investor protections. But here's my take. These are growing pains. These are solvable problems. They're not reasons to avoid digital securities. They're reasons to learn about them now. You want to know why big banks and traditional financial institutions keep screwing this up? I wrote about this recently in Wall Street's trillion dollar blockchain mistake. They're trying to use blockchain technology to recreate the exact same systems they already have. They're building private blockchains that only they control.

They're creating permissioned networks that defeat the whole purpose of blockchain. They're trying to force new technology into old paradigms. I've been in meetings with major banks where they proudly show me their blockchain solution, and it's just a worse version of a database they already have. They spent millions building it, and it's slower and more expensive than what they had before. Digital securities work when you embrace what makes blockchain special. Transparency, composability, 24/7 operation, global access, instant settlements, not when you try to make it look exactly like what you already have.

Here's what I think happens over the next five years. Public companies start tokenizing their equity. Not all of it, but enough to test the waters. You'll see more galaxy digital type moves. Private equity becomes accessible to retail investors through tokenization. That $10 million dollar minimum investment becomes $1,000. Real estate tokenization finally takes off, but not the way people think. It won't be REITs 2.0. It'll be direct property ownership, fractional shares, instant settlements, and the big one?

Traditional stock exchange start losing market share to tokenize alternatives, not because of regulation, but because 24/7 trading and instant settlement are just better. So what should you do right now? Well, educate yourself on the difference between cryptocurrencies and digital securities. Stop lumping them together. They're completely different asset classes. Open an account on a regulated digital securities platform. INX, Securitize, Marcus, T0. Even if you don't trade, get familiar with how they work. If you're a company owner or CFO, start thinking about tokenization not next year, now.

Your cap table, your fund interest, your real estate holdings, these can all be tokenized. Follow the regulatory developments. The SEC is active in this space. What they approve or reject will reshape this market. Look at your investment portfolio. Are there places where tokenized securities make sense? Maybe it's access to private markets. Maybe it's international assets. Maybe it's just 24/7 trading. Look, I spent 30 years on Wall Street before I got into this space. I've seen technology changes come and go. Most of them were hype. This one is different. Digital securities aren't replacing traditional securities. They're upgrading them.

And just like email didn't replace mail, it just made it better, faster, and more accessible. Digital securities are going to make capital markets better, faster, and more accessible. But only if people understand what they actually are. So, the next time someone asks you if you're into crypto, you can say, "No, I'm into digital securities and let me explain the difference." That's it for today's episode. Next time, we're diving into the regulatory framework, Reg D, Reg S, Reg CF, and how they actually work in the digital age. I'm Douglas Borthwick. This is Old Man New Money. Subscribe whenever you get our podcasts.

And if this helped you understand digital securities better, share it with someone who needs to hear it. Thank you.