Tokens are given for the money to a participant of an ICO. This is a blockchain-based document which admits the right of its owner to get something valuable from the company. If the price of tokens will rise, one can sell them at a profit.
Tokens were widely used even before blockchain, e.g. in subway or as reward miles.
What is the difference between token and cryptocurrency
Cryptocurrency is an open means of payment, which can be bought for common fiat money. No organization can control it’s quantity or price.
Tokens are created by a company. The company decides how many tokens will be issued and how much they will initially cost. Tokens can be a payment means inside the project. Outside of it — only if they will be adopted as payment means by other companies. During ICO of TenX other different tokens were accepted as payments for Pay tokens.
Types of tokens: what profit they bring to the owner
Tokens are not always connected with the product or project’s revenue. There are tokens, which do not give their owner the right for revenue or value.
Confirm that the buyer transferred money to the project. Their owner can get revenue only from their sale. Jetons sale is similar to the collection of donation.
Can substitute money, be a reward for some actions or indicator of something. For example, KIN tokens can be payed for video, games and other products of the system partners.
Steemit platforms pays its users for creation and estimation of content. Part of the revenue they get in Steem Dollar — this is an internal money equal to $1, other part in Steem Power — this is a reputation.
Used as loans or prepayment. After project’s launching the company can buy tokens back for money or exchange to created products.
Sand Coin is bound to the real product — sand. This project have been raising money for sand quarry mining in Moscow region. One token was offered to exchange for 1 м3 of sand. The buyers profit was in price difference: the price of one token was less than $1, while 1 м3 of sand cost more than $5.
ZrCoin have been raising funds for construction of plant. 1 token cost $1,5. After construction completion and start of production the company will buy tokens back at market price of synthetic zirconia. 1 kg of raw material cost almost $3 in May, 2017.
Investment funds pay out the tokens holders a percentage from the income earned using their money. The fund’s income is not distributed between them. Credit tokens of Steem Dollar bring 10% per annum.
Similar to traditional shares, these give their owner a right on a part of income and participation in company’s development. The investment fund Symmetry trades cryptocurrencies and invests them in ICOs. Owners of SYMM tokens are shareholders. They get a part of fund’s income in ethers monthly and vote during consideration of important questions.
Why companies issue tokens
A company issues and sells tokens in order to raise funds for creation and development of it’s new project or product. At the beginning this tool was used only by blockchain-projects. Later projects of any type began to use it, as ICO helps to overcome many restrictions of traditional ways of fundraising.
To protect the rights of investors, the regulatory authorities of USA and Singapore verify the company, check the ICO terms and determine the type of tokens. If tokens imply an income, they can be equated to securities and if it is the case, all questions between ICO participants will be solved according to Securities Market Act. This is also necessary to deal with fraud, money-laundering and terrorism financing.
Who can buy tokens
Tokens can be bought by anybody, who has some cryptocurrency, because the prices of tokens start from several cents. So by participating in ICO, people with no special educational background or much money can support interesting projects and generate income.
Where tokens can be bought
Tokens can be bought on projects website during ICO, on stock market or exchange services.