The token is a required aspect of any ICO. If you are reading this material, then most likely already familiar with this term. Just in case, we recall: ICO is a form of cryptocurrency crowdfunding. That is, attracting investment for the development of the project.
These projects receive funds in the form of cryptocurrency traded on the stock exchange – Ethereum or Bitcoin. More rarely, other currencies are accepted for ICO. Instead, the investor receives some “tokens”. They are an internal ICO / project asset. This is an analogue of the company’s shares.
This material is dedicated to cryptocurrency tokens and ICO: their purpose, form, reasons for their appearance.
Digital Tokens – What It Is And Why They Are Created
Formally in a digital glossary, a token means a gadget or an array of characters used to identify users.
To some extent, this “transcription” is relevant for ICO / cryptocurrency. The presence of certain tokens indicates that a person belongs to the project, is proof of his participation in something.
The functional description of digital tokens is much more interesting. They can simultaneously represent the following and have the following characteristics:
- Have a purchasing power – for them, you can buy services and services;
- Act as a currency in a closed ecosystem;
- To be an indicator of the shareholder’s share in some “enterprise”;
- A significant indicator of something (the number of available gigabytes to download);
- A form of remuneration for some actions.
That is, a token at the same time can be used as a reward tool in a game, as well as be a unit of account.
This is one of the fundamental differences between the token and the koin (coins, cryptocurrency units). Cryptocurrency is designed for payments and transactions. That is, its main function is purchasing power. Tokens have a wider range of applications, but smaller. In addition to being used to obtain services and purchase certain goods, tokens can also underlie a loyalty program or be a digital share.
In this case, the cryptocurrency, if I may say so, circulates “in the external digital economy.” Tokens, at least initially, support the work of a closed ecosystem. They do not have a public wallet and blockchain, like the main cryptocurrency.
Imagine that cryptocurrency coins are American dollars, a generally accepted and universal payment instrument. And tokens, in turn, are chips in the casino, tokens in the subway, skins in CS: GO, airline miles and so on.
However, as soon as the ICO ends, the project will go to the stock exchange – the token will be just one conversion from the status of the “generally accepted and universal payment instrument”. In this case, you can easily sell them for cryptocurrency. It’s like selling metro tokens for money.
The main stage of the ICO, the primary coin offering, is also called the crowdsale or tokenail (selling tokens). The first such event in the world of cryptocurrency occurred at the turn of 2013-2014, when the first ICO in history was launched – Mastercoin (the current name is Omni ). In the future, the term token “hooked” to the primary coins and began its widespread use.
Here are some important features and facts about tokens:
- Tokens are spread due to the development of the cryptocurrency market. If it continued to consist of just a few coins, then there would be no need for additional digital assets. The impetus for promoting ICO and tokens is associated with the creation of the Ethereum platform with its smart contract technology ;
- Tokens are “based” on various blockchains. In the initial stages, they were, in fact, bitcoin forks, such as DogeCoin. The basis is the Ethereum blockchain and the source code of the ERC20 platform;
- There are whole platforms for the release of ICO. The most popular of them is Ethereum with a multi-million audience. Other similar platforms: Waves, EOS, NEM, KickICO ;
- Buying tokens during ICO you acquire private keys. They contain information about the number of assets owned by you;
- Tokens are invested and tend to increase their value. Here again, the same analogy with the shares of a company or a startup. Investors who purchased tokens can not only use them in the internal ecosystem of the project but also receive their dividends;
- Tokens really get for free. Some projects donate tokens just for registration. Bounty is massively used – it is the remuneration of participants who have contributed to the development of the project.
Main Types Of Tokens
Above, we noted that the functions and capabilities of tokens are not limited to the opportunity to buy something. Depending on their features and purpose, it is conditionally possible to distinguish three main types:
- Appcoins (application tokens);
- Accumulative (credit) coins;
- Tokens are assets, that is, stocks.
The lion’s share of all ICO startups has a mobile platform or web functionality. Circulation of tokens in such projects is needed primarily for internal operations. That is, in this case, the appcoins are an internal payment instrument.
For example, in the TrafficX project, which is a “cryptocurrency” analogue of Uber, tokens are used to pay for travel. Dating Platform MatchPool resembles Tinder or other dating services. For Coin (Gup) here are purchased premium status and additional features for the account.
In a number of data storage projects, tokens buy additional space/gigabytes. In games like the Augmenters, Coin is needed to buy gear and pump their heroes. In a platform such as game credits, tokens are used to pay for the services of game developers, and for purchases of in-game items.
There are not so many tokens yet. They do not circulate separately but are created together with the main coin of the project. Their essence is that they bring dividends to their owners subject to long-term “storage” within the project. A striking example of such a token is Steam Dollars, used in the Steemit blogosphere. There are coins at several rates: 10% and 100% per annum. In the second option, investors must not withdraw money from the deposit for two years.
Any internal coin becomes a stock at the moment when ICO tokens go public. This means that its rate is determined by market demand. And most participants of ICO-startups just consider the project tokens as stocks.
Individual projects are built on the principle of investment. Take, for example, startups associated with solar energy: SolarDAO, Sun contract. In essence, these are funds with their shares. You get a share of a company that deals with financing solar power plants.
Or take the platform TargetCoin – this is a new investment fund, the implementation of trust management of deposits in the ICO format. Your dividends depend on the success of the TargetCoin algorithm that selects startups for investment.
In individual platforms (Digix), participation in digital equity capital allows participants to vote.
Earnings On Tokens
Buying tokens of ICO-projects is a potential opportunity for earning by investing. In 2017, for the first time, cryptocurrency startups managed to collect over $ 200 million through this type of crowdfunding. On average, 3 ICOs are initiated per week. And this figure promises to grow several times in the future. Opportunities to invest in is becoming more.
Are all of them good? Not all. To determine the attractiveness of the project, study White Paper, and Roadmap. The White Book describes the ICO technical characteristics, investment attractiveness, project team, and their vision. The Roadmap shows the main stages and goals of a startup in chronological order.
When buying tokens be sure to conduct a comprehensive analysis. Find answers to the following questions:
What is a token – is it an action, a coin for internal payments or a unit of remuneration? What are the features of its use? What should happen to increase the cost of the token? Does it depend only on the project itself or on some external factors? The niche in which the project works. It is better to focus on ICO in the field of innovation, blockchain and cryptocurrency; Can a project exist without Coin? Let’s say investment funds can easily accept dollars instead of tokens. It is desirable that the use of blockchain and tokens be rational and necessary. The potential for growth. How much can a token grow in value, how attractive is it for the masses?
How much does a token cost and how reasonable is its initial price? If you are offered to buy 1 gigabyte of cloud space for 100 tokens, worth $ 1 each, then this is an unjustified price.
You can buy tokens in several stages. On PRE-ICO, when the main crowdsale has not yet started. Then their cost is low. However, it is still not clear what a startup is and what its prospects are. To purchase, it is enough to register in the project and then transfer funds to the specified wallet.
Buying Tokens During ICO
Buying during the ICO itself is less risky. This means that, at a minimum, the creators have managed to collect investment in initiating the coin supply and the audience shows a certain interest.
Purchase Tokens On The Exchange
A safer option is to buy directly on the exchange when tokens were added to trading pairs. This is a sign of market recognition of the project. Such an analogue of “public status” in the cryptocurrency world. Only instead of stocks, trades are offered for trading.
There are special services involved in monitoring, statistics and evaluation of ICO. For example, on the ICO Rating website you can see the risk assessment, the level of hyip, and the overall assessment of a startup:
The service IcoStats has a database of the most successful projects on ROI, the total amount of funds raised, etc. Other useful services for analyzing the attractiveness of ICO: ICO Tracker, Coins Schedule, ICO-List, TokenMarket and others.
Consider the main pros and cons of this type of investment as the purchase of ICO tokens
|+ High liquidity due to exit on the stock exchange; |
+ ROI of the most successful projects exceeds 10,000%;
+ Ability to use tokens inside the platform;
+ Available form of investment;
+ Large selection of niches and directions.
|– Lack of regulation; |
– There is a risk of running into fraudsters;
– Coin cost is in any case susceptible to the general
a situation in the cryptocurrency market.
The token is both a digital share, a payment option, and a donate/reward tool. It all depends on the project in which it circulates.
We hope that this small acquaintance with tokens at least partially helped to answer the question: “what is it?”. Of course, the further use of this knowledge is your own business. From our side, we add that the purchase of tokens is a potentially profitable investment option.