What Are ICO Tokens and How to Use Them?
Imagine $6 billion. This is how much companies have raised in four months from the beginning of 2018 via ICOs. This year, 202 ICOs have already been launched, and in the short period of time, they built more capital than the token sales in the previous year.
What does it mean? It is a clear sign that token sale is a very efficient way to raise capital, which gains more popularity at a very fast pace. Let’s discover what tokens actually are.
Crypto tokens stand for digital assets, certain utilities or some units of value, and are placed on the top of blockchain. Any asset which you can trade can be symbolized by tokens.
You may have a question “how do crypto coins and tokens differ?” The answer is easy. You can use cryptocurrency coins for transactions as we pay with traditional coins to buy something. As for tokens, they can perform more types of operations and can be used in more various situations, for example, they can represent companies’ shares.
Sometimes you can hear the term “token” related to some altcoin because if the altcoin exists on the platform of another coin, as STORJ, ATS or WCX coins exist on Ethereum platform, it can be called token as well. Now we know what exactly tokens are, let’s move to their origin.
Tokens’ origins and aims
Tokens appear via ICOs. Following the existing template offered on the crypto platform, it is very easy to create a token.
Token sale is applied in crowdfunding by start-up projects to build capital. When a company launches an ICO, investors buy crowdfunded cryptocurrency in a form of tokens and pay for it in other crypto coins which have more liquidity.
Currently, a lot of different spheres are being tokenized, and different tokens are used for symbolization of different things. Let’s dive into it.
Which token types exist?
It is possible to categorize tokens in several various ways, uniting them differently, taking different characteristics into account.
First, you can divide tokens into five big groups depending on what they represent:
- Currency tokens appeared first and are currently are the most known as this type includes the majority of all existing tokens. Currency tokens represent a storage of value and are used as money in transactions. You know about Bitcoin or Litecoin tokens, right? So, they fall under this category. This group of tokens is also sometimes referred as just cryptocurrencies.
- Utility tokens are used on service-providing platforms in order to access them, therefore, the token holder will be able to use the platform. When the ICO is being launched, the tokens distributed are usually utility tokens which will give the holders the right to use a platform in the future.
- Asset tokens got their name because they represent a physical asset, for example, gold or other precious metals. This kind of tokens is backed by assets which regulates their price.
- Equity tokens are distributed via ICOs and holders become owners of the organization or project which launches ICO. Equity tokens are very popular and desired ones as they bring the shares in a company, however, they fall under more regulations than the other token types.
- Reputation and Reward Tokens, are distributed among the users of the platform who actively participate in its operations and therefore viewed as trusted users. Creating content for a platform, interacting with other users or doing something significant for a project helps people to get this kind of tokens as a reward which symbolizes their valued reputation.
The second way how tokens can be united in groups relates to their major role:
- Usage tokens, as implied from the name, give holder a right to use services provided by the platform.
- Work tokens are needed in order to make a contribution to a certain network.
It is important to know that a token can belong to both groups at the same time, providing an access to services as well as giving a right to help platform’s work. Ethereum, for example, refers to voth.
Also, there is a third way of dividing tokens into groups:
- Intrinsic/native/built-in tokens serve as a basis for blockchain. They are not backed by anything and they also help to prevent spam during the process of transaction making. Bitcoin, Ripple and Ethereum are the brightest examples of intrinsic tokens.
- Application tokens exist on a certain application layer and allow holders to work within the application. It means that if you have an application token, you can create content, make updates or delete information from the application itself.
- Asset-backed tokens, as it is easy to understand by their name, are backed by assets and serve as their equivalent in a digital form.