What Is an ICO Token and How Does It work

What Is an ICO Token and How Does It work 1

It is an entity with a value specified by the issuer. If it’s a fashion start-up, a token can equal a dress or an annual software license in the case of a high-tech start-up. You can even issue tokens of yourself and a token holder can buy an hour of your work with the token. You can “tokenize” everything. You can find ICO listing sites on ICO TopList.

What is the difference between coin crypto coins and tokens?

A currency is a financial equivalent, something that defines value and serves as transference of value. A token is a symbol of a contract; the value does not depend on mining, the price of gold or any dynamic market criteria. A friend of mine once gave me a note saying he would always make me a coffee on demand. He still does that, after 10 years, it was a great token.

What is a token and how it work?

Okay, a token is not a coin, I get it. But still, should something regulate the transaction, value, etc.? How does it work? You need a platform for this. Take Etherium as an example, as it is one of the most popular platforms for smart tokens.

Here is the complete contract cycle:

  1. Creation of tokens: a company records the basic rules (number of tokens, token value, and special conditions). Once created, the platform will serve as a very smart notary for all future transactions, ensuring that all conditions are met.
  2. Acquisition of tokens: When someone wants to buy a token, the process is very similar to buying a coca cola in a vending machine. You approach a machine; drop the coin and hit the “coca” button (choose the token you want to buy). The machine checks for “cokes” in stock and if you are qualified to buy it. If it’s all right, you get your drink (or token in our case). The machine says “has a good day” and updates the stock information (one less coca now).
  3. Token deal: If you have a coke, you can simply give it to your friend. For money or for free. In fact tokens, you have your token wallet that is supported by the same platform that issued the token. You can transfer your token using the wallet. And again, a virtual notary, powered by a smart contract, will make you do it according to the rules. In addition, all portfolio activity is constantly recorded and updated.

Types of tokens

Let’s look at the most common types of tokens.

Token utility – the most popular type

Remember the amusement parks of childhood? Roller coasters, carriages, hot dogs and cotton candy? At the entrance, you have to buy tickets (tokens) for food and enter the attractions.

So let’s pretend that a company is an amusement park and with the tokens, you can buy different services just like you do with hot dog cars.

Now to make the analogy perfect, let’s say you can buy a lot of tokens before the park is officially opened or when it’s opened. If the park becomes popular, your tokens will be much more expensive. Like $ 10 for a hot dog. But a smart kid who bought the tokens before opening will still enjoy his meal for $ 1.

This is basically the idea behind the issue and purchase of tokens. But if at the amusement park do you buy the tokens at the entrance, where do you get a criptomoeda token?

The answer is ICO- Initial Currency Offer.

Token – share (equity tokens)

In this case, the ICO is completely equal to the IPO. Generally tokens are issued when a startup does not require crypto technology.

In this case, the holders of tokens will receive dividends or fixed commission. They will also be able to participate in company decisions. All this honour for supporting the project early in life.

Token – credit

This is a loan; which a holder gives for a startup. It’s another way to raise money. For example, you invested X to get X + 10%.

Token – combo

If you’re not totally confused, it will stay now: sometimes a token can belong to more than one type. For example, Sia and Digix tokens are tokens and actions. And Steemit has all three types of tokens.

 How can you trade tokens?

This part is very similar to that of the coins. You need to register at a foreign exchange office to buy and sell tokens.

The conditions of the transaction can be really complicated: the contract can include several rules like “you can sell it only before a specific date” or “after a date, but only for a particular vendor”. So when investing in tokens, be sure to read the “fine print” to the end.

Written by Himanshu Gupta

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