Token Analysis
Everything you need to know about tokens
1. Difference between coins and tokens
It is important to note that all coins or tokens are regarded as cryptocurrencies, even if most of the coins do not function as a currency or medium of exchange. But there are some differences between coins and tokens.
Altcoins
Alternative cryptocurrency coins are also called altcoins or “coins”. Altcoins simply refer to coins that are an alternative to Bitcoin.
The majority of altcoins are a variant (fork) of Bitcoin, built using Bitcoin’s open-sourced, original protocol with changes to its underlying codes, therefore conceiving an entirely new coin with a different set of features.
There are other altcoins that were not built on Bitcoin’s open-source protocol. Rather, they have created their own Blockchain and protocol that support their native currency.
What is common to all altcoins is that they all possess their own independent blockchain, where transactions relating to their native coins occur in.
Tokens
Tokens are a representation of a particular asset or utility, that usually resides on top of another blockchain. Tokens can represent basically any assets that are changeable and tradeable, from commodities to loyalty points to even other cryptocurrencies!
Creating tokens is a much easier process than creating coins as you do not have to modify the codes from a particular protocol or create a blockchain from scratch. All you have to do is follow a standard template on the blockchain — such as on the Ethereum or Waves platform — that allows you to create your own tokens. Creation of your own tokens is made possible through the use of smart contracts; programmable computer codes that are self-executing and do not need any third-parties to operate.
Tokens are created and distributed to the public through an Initial Coin Offering (ICO)
The main difference between altcoins and tokens is in their structure; altcoins are separate currencies with their own separate blockchain while tokens operate on top of a blockchain that facilitates the creation of decentralized applications (DAPPs).
2. Types of Tokens
There are five different groups of tokens, and they are divided by their functionalities:
- Utility Token
- Security Token
- Currency Token
- Reward Token
- Asset Token
Utility Token
Utility tokens serve as the in-platform coins for purchases.
An ICO may present a product which will cost a certain amount of tokens they created. Once you buy those tokens during the ICO, you will have them available for purchasing their product or service. Most of the ICOs offer their tokens for a significantly lower price, especially during the early period of token sale.
Security Token
The security token is also called equity token and tokenized security. The main purpose of this type of token is to act as a stock after the initial coin offering has ended.
It is just like old-fashioned buying of stocks to become a rightful owner of a certain percentage of a company. However, these tokens have one big advantage over traditional stocks — they are much easier to buy. Some ICOs offer a relatively small price for their tokens and you can invest really small amounts of money. If everything goes well — you are likely to have a huge return on investment.
Currency Token
The currency tokens are actually the real cryptocurrencies. Their purpose is to use them to buy and sell things on the Internet. They are a decentralized online currency.
Just like every other currency online, you can store it in digital wallets and even trade them for other tokens.
Reward Token
The reward token is also known as reputation token and its purpose is to reward someone on the platforms that use blockchain technology and tokens. Although this idea is interesting, reward tokens are still not popular among investors due to the fact that they do not have any real value.
Asset Token
The asset token represents the value of a real-world asset or product, thus making it easier to buy a share of that asset. This process is called tokenization and the default example would be a tokenization of gold. Simply, instead of buying the gold itself, you can only just buy the tokens which represent that gold. Tokenization can really come to life if carefully implemented. However, the whole tokenization part is still not fully researched and many investors still opt for other types of tokens.
3. How to buy tokens?
You can buy tokens:
- Before public ICO
- During public ICO
- After public ICO
Buying tokens before ICO
Most ICOs have 3 parts to their tokensale: private sale, presale and crowdsale (public ICO). ICO private sale is also called Institutional round and is intended for early investors. Private sales are usually not announced and not open to public. If private sale is announced, ICOs usually have stricter requirements for participation and are very picky with who they let into private sale. Bonuses or discounts may be offered based on how big the contribution is.
ICO Presale is also known as Pre-ICO. It is the token sale event that ICO projects run before the official crowdsale or public ICO. The fundraising caps for Pre-ICOs are often lower as compared to that of the main ICO and tokens are usually sold cheaper. Presales are announced and promoted on the website, social media and possibly through advertising. An ICO presale is good for investors who wants a higher discount or bonus compared to crowdsale without the drawbacks or the high risks associated in participating in private sale.
Buying tokens during ICO
Why would you buy tokens during ICO? Most of the ICOs offer their tokens for a significantly lower price, especially during the early period of token sale. If you are interested in their product or service, it would be much cheaper and convenient for you to buy them during ICO.
Before you decide to buy tokens during ICO, do your research, and never invest more than you are willing to lose! When you are ready to participate in ICO, the procedure is quite simple. You need to open an Exchange account, open your own wallet and follow ICO instructions on the website of the chosen ICO project. For the detailed guide on how to participate in ICO, read this article — HOW TO PARTICIPATE IN ICO.
Buying tokens after ICO
Once the ICO period is over, and if it was successful enough, the token will eventually be listed on an exchange. Which particular exchange depends on a project. To find out which exchange will list the token, you can either follow the announcements from the project itself, or check the Bitcoin Forum’s Altcoin section, and find a topic about the particular token. Alternatively, Coin Market Cap lists most cryptocurrencies in existence as well as exchanges where they can be traded.
When a token gets listed on an exchange, most of the time it will be trading against Bitcoin and Ether, and you can buy tokens you like directly from the exchange.
You can also trade assets (Bitcoin, Ether, Ripple) directly for tokens using a service like Shapeshift or any other online trading platform. Select a coin that you want to trade and send it to the provided address. In return, you will receive the tokens you requested. In order to get your tokens, you will need to provide an address of a wallet capable of receiving them.
4. What to do with Tokens?
Once you have acquired the tokens you like, you can do one of two things:
- Hold and receive dividends
- Trade tokens
Hold and receive dividends
There are plenty of successful and profitable ICOs out there. Once the company successfully goes past the ICO stage, its value should start getting higher, as the company itself becomes more trusted and well-established in the marketplace. At the same time, the token’s value will go up as well, enabling investors to gain bigger profits.
Usually, people think that the only way to make money in crypto is to buy tokens when the price is low and sell them when the price rises. However, there are other smart ways to earn money in the crypto space. Dividend paying cryptocurrencies are becoming a dominant, emerging trend because they offer a hint of sustainability and real value.
Dividends provide an income without investors having to touch the underlying capital or asset, which makes them an extremely attractive income option for investors. Dividends can be issued in various forms, such as cash payment, shares of stock or any other form.
Trade tokens
When the token you have bought gets listed on one of the cryptocurrency exchanges, you will be able to trade it. Bitcoin and Ether are going to be the only trading options for quite some time after it gets listed, with other trading pairs being supported later on (if the token is in demand). But keep in mind that some tokens will never get listed.
You will probably need to sit on your investment for a while. Sometimes, a massive loss happens straight away, or you do not see any gain for a long time. And then, a quick and massive spike might happen, which can either mean that the token’s value will keep rising or it could be a one-time event, after which the value of the token might go back to virtually nothing.
Those spikes can happen within just minutes, and you need to be able to catch them. Many exchanges have alerts or “set a stop loss” options, so take full advantage of those.
https://tokensmarketplace.com/category/token-school/
Dear readers, hope you had fun reading and learning about tokens. Now, you are a little more prepared to dive into the world of cryptocurrencies and start investing in tokens you like. BUT REMEMBER — Always do your research, and never invest more than you are ready to lose!!!
Have fun and good luck!
