Mar 21, 2018
What is the advantage of launching a token instead of a coin in an ICO?
What is the advantage of launching a token instead of a coin in an ICO?
One other commenter also mentioned this, but when a company launches a token, it is called an Initial Token Offering, or ITO. I do know that people use the word ICO and ITO interchangeably. This is something that people will have to correct as ITOs and ICOs become more prominent in the future.
The differences between ITOs and ICOs are not as vast as one may think. The functionality of both remain the same as both are simply pieces of code attached a monetary value. These bits of code are either used to represent a share of something, enact an action (utility), or trade assets.
Foundation
The main difference between a coin and token is the tier that the platform is built on. Coins technically have their own chain built from scratch. They are Tier 1 platforms. If you think about Bitcoin, Ethereum, and 0x, they are all currencies that operate from the ground up. As long as the platform has a native blockchain that supports their own currency, the currency can be considered a true coin.
Tokens, on the other hand, are Tier 2 level platforms. This means that token based platforms are using a preexisting blockchain as their mother network. They use variants of established native chains and add changes to its code, creating a new platform entirely. Ethereum is the most popular native blockchain that token companies use to build off of. The Ethereum network has made it incredibly easy for people to integrate their platforms into with their ERC20 technology. Most ITOs will be built using the Ethereum chain.
Usage
The second main point is the difference in usage. Coins are usually used to transact or store goods and services. Bitcoin and Ethereum are mainly used by the community as stores of wealth or financial investments. Bitcoin and Ethereum are also used frequently to transact physical goods or services across the internet. Most will be considered the same as money.
Tokens are used a little differently. Tokens can initially be used as a method to fund raise. Like coins, initial sales are straightforward transactions of money for code. ITO companies need an initial fund to work and eat off of. The main function of tokens, however, is utility. Tokens not only represent the value of something, but can also run the daily functions of the platform. Things like smart contracts and proof of holding can be enacted with tokens.
What is the advantage of a token over coin?:
The main advantage that a token has over a coin is the workload. It is incredibly complicated to build algorithms and smart contracts from scratch. Using an established chain allows you to focus on the main functionalities of your platform as opposed to the coin. Coins are also very limited in what you can do with them. There is a reason why most are solely used as a method of transaction. Ethereum, for example, is an incredible project. It’s base technology is solid and it carries value incredibly well compared to a lot of different altcoins.
However, Ethereum’s true value comes from its ability to host functions on top of financial value. The tokens created under ERC20 allows actual functions to take place on top of the blockchain. Things like fragmenting data, margin lending, and product tracking occurs on token level chain activity in a more streamlined way than your traditional coin.
Conclusion:
Coins are built on a native blockchain. They are usually the basis of tokens and represent value instead of functionality. Tokens are built on top of a preexisting blockchain. They can be used to represent value, but they are regarded as valuable because of their utility. Tokens have increased functionality over coins, making them more lucrative in launching a platform.
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Originally published at www.quora.com.
