Cryptocurrency Tokens: Everything You Need to Know
ICO, or initial coin offering, is becoming a more and more popular way of crowdfunding. It is also known as a token sale and is highly used by different start-ups for capital building. Companies use token sale for raising money, and this way turns to be quite successful. Although ICOs are sometimes criticised and even fall under regulations in some countries, this means of capital building helped companies to raise around $6 billion using token sale in 2017.
This year, 171 ICOs have already been issued with the total amount of money raised of around $6 billion. The number shows that investors find ICOs to be a very efficient way of raising money, and more people start participating in them. Let’s get into how it actually works.
What is token?
While crypto coins are stored in wallets and serve as money in transactions, cryptocurrency tokens represent digital assets, utilities or units of value, usually residing on top of blockchain. Tokens may describe any assets which are fungible and tradeable. Tokens are usually built on cryptocurrencies’ platforms, for example, Ethereum’s native token is ERC20, and Bitcoin’s native token is BTC.
Sometimes the term “token” is used to describe any altcoin which exists’ on another coin’s platform and not on its own. For example, STORJ, ATS or WCX coins are built of Ethereum platform, and are sometimes referred to as tokens.
How do tokens appear?
Tokens are created through ICOs. The process of creation is not complicated as cryptocurrency platforms have standard templates on the blockchain which just have to be followed.
In an ICO from some business or company, crowdfunded cryptocurrency is sold to investors as tokens, while investors are paying in other more liquid cryptocurrencies.
Cryptocurrency tokens types
Tokens can be divided in types in different ways. First, there are five major groups how you can divide tokens.
Currency tokens are the first blockchain based tokens which serve as a storage of value and as money while making transactions. Bright examples of this group tokens are Bitcoin, Litecoin or Monero.
Utility tokens such as Ethereum or Ripple, serve as means of powering different processes such as running smart contracts, and are only used in their ecosystems. Sometimes they are called Network Access Tokens, meaning that they give access to some network services.
Asset tokens represent ownership of some actual physical product which makes them stable.
Equity tokens represent the ownership of some organization and the success it can potentially bring. This kind of tokens ensures reward from the ownership and from the actions of others as well. Equity tokens seem to become the most regulated ones.
Reputation and Reward Tokens, as implied from the name, are given as rewards. They mark that some user or wallet have done something significant. Usually, the value of these tokens is hard to estimate.
Second, tokens can be divided into two major groups: usage tokens and work tokens. Usage tokens are needed to use a service, and work tokens give rights to contribute work to network and be a shareholder.
Third, tokens may grouped in another way and divided into three types. The first is intrinsic/native/built-in tokens which serve as spam prevention while transactions. The second type in this subdivision is application tokens which are issued on the application layer through smart contracts. And the last type is asset-backed tokens which are the digital equivalent to physical assets.
How to buy ICO tokens?
Tokens ensure that both businesses and customers make a profitable deal and serve as a reliable way of circulating value.
Buying tokens during ICO is more profitable since they are cheaper, and the process is easy.
- Make sure you have some cryptocurrency in your digital wallet
- Sign up to the website where the offering takes place
- Buy tokens by sending cryptocurrency to the ICO address
- When the transaction is confirmed, you will get tokens stored into your account until the end of ICO.
- After ICO ends, you will be able to withdraw the tokens into your wallet.
Participation in token sale is not complicated and gives lots of benefits.