A Detailed Review of the Concept “Token”

token concept

The market of the initial coin offering (ICO) has been developing rapidly for the past two years. If you want to learn more about what a token is, how it works and why it is needed, then you are most likely familiar with such a thing as ICO. In case you haven’t, let’s repeat. ICO is a cryptocurrency analogue of crowdfunding, with the difference that funds for the development of a project are collected only in cryptocurrency. In this article we will analyze the concept of token, explain what kinds of it exist and what purposes it is used for.

Contents:
(please, click the topic to scroll down to it)

  1. What is a token? What kinds of them exist?
  2. Appcoins, credit tokens and asset tokens
  3. The ICO market and purchasing tokens as a way to earn money
  4. Conclusion

1. What is a token? What kinds of them exist?

Token is an indispensable attribute of conducting an ICO. Token is the domestic currency of the startup, in simple words, it can be compared with the company’s shares. Many people believe that tokens are just a means of payment, but it should be noted that they can perform various actions. Thus, tokens are classified into several types according to their purpose:

  • credit / deposit / saving tokens;
  • appcoins;
  • asset tokens, similar to shares.

2. Appcoins, credit tokens and asset tokens

Let’s take a closer look at each of the abovementioned variations of tokens.

Appcoins

They are purely domestic currency of applications. Application tokens are very common, because almost every ICO project has its own platform or at least a web-functional. Circulation of appcoins provides for all internal operations of the application. They have a certain value inside the platform, if the product becomes in demand, the products can be exchanged for fiat money.

Examples of such tokens:

  • the TrafficX project is a cryptocurrency analogue of UBER, it allows you to pay for taxi trips using tokens;
  • Dating site MatchPool is a cryptocurrency analogue of Tinder, you can buy appcoins on the platform for various kinds of privileges, (pro-accounts, premium-status, etc.).

The list of projects which use coins as a means of payment for various goods and services inside their applications are quite numerous. It will be pointless to list all of them here, we hope you got the main idea.

Credit tokens

This kind of digital tokens is not very common so far. They do not “walk” independently, but attach to the main token of a particular project. They are depository in nature, that is, the owners receive fixed dividends for their long-term storage. A striking example is the project Steem Dollars, which pays all their holders from 10% to 100% annually, depending on the period of storage of the tokens. You need to keep from withdrawing funds for 2 years to get a doubling of capital.

Asset tokens

By the way, any internal currency of the project can evolve into a full-fledged token-share, subject to listing on the exchange. Placement of coins on cryptocurrency exchanges is always an important stage in the development of any project, since this event means the availability of market demand for their asset. The overwhelming majority of ICO participants turn their attention to asset tokens. Many projects are built on the principles of investment, where investors are essentially shareholders, but in the form of cryptocurrency.

3. The ICO market and purchasing tokens as a way to earn money

By purchasing ICO tokens, you buy an investment asset that can potentially bring a large profit in the future. In the past two years, the ICO market has been fairly well funded. Good startups can collect billions of dollars in no time. Successful projects have multiplied their depositors’ investments by tens of thousands of times, making them multimillionaires within a couple of years.

Unfortunately, there is a downside here. The fact is that, according to the statistics, more than 90% of ICOs are failures, thus, their depositors lose their investments. It is quite hard to consciously choose a high-quality and promising project at an early stage of its development.

Before investing your hard earned funds in any project, you should conduct a thorough and in-depth analysis. First, you need to look through Whitepaper and road map. These are the main project documents, which describe the main characteristics and implementation steps in detail. Be sure to pay attention to the type of tokens and whether developers answer the question: why there will be demand for them. If so, what will they do to implement the plan? When will this happen? These are just fundamental things, to be honest, we need to write a separate big article in order to discuss this topic in detail and explain what to pay attention to when choosing ICO..

You can buy tokens at different stages. The cheapest price will be at pre-ICO, this is the earliest stage of the project launch. However, here the risks are the highest, as it is not clear what a startup is. It can be compared with the purchase of real estate, when the builders just started digging a foundation pit. The next stage is a public ICO. Prices here are not as cheap, but they are still bearable. A project still does not feel super trustworthy, but it already has a certain community and financial means. Perhaps, the safest option for buying tokens is after they are listed at exchanges. At this time, their price is already quite high, if compared with previous stages. A project already has a certain market acceptance, good projects can even multiply the capital of their depositors even at this stage. By buying tokens on exchanges, you significantly reduce the risks of a complete loss of investment.

4. Conclusion

Tokens are crucial for the cryptocurrency world and can perform various functions. With their help, you can become a holder of “shares” of the company’s assets, pay inside the application for certain goods or services and receive dividends for long-term storage.

Earnings through the purchase of tokens is a rather risky, but potentially profitable enterprise. The ICO market has many scammers or unprofessional teams that do not finish their projects, so most private investors lose their deposits. Before investing in any project, you should carefully analyze it.

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