Digital tokens are the new way companies are raising millions in barely minutes. This has brought about a lot of speculation on if these tokens are actually going to ‘go to the moon’. Everybody wants a return on his or her investments and with the digital tokens, sometimes it’s not even clear what the tokens really are. This makes it impossible to evaluate the value of the tokens in the long run as in the short term value is driven by the hype given to the ICO.
Digital tokens have shaken up the status quo shifting the funding industry from venture capitalists to ICOs (Initial Coin Offering). Following the speculations surrounding digital tokens, every company is doing a research on how they can use this to their advantage. With the SEC (Securities and Exchange Commission) announcement to consider ICO as securities, investors’ confidence on using ICOs as a viable way to raise funds has been boosted. There are different types of tokens offered in ICOs and it is good to have an understanding of the tokens involved.
Digital Token Categories
- Coins or Cryptocurrency
TokenThese are digital currencies with Bitcoin being the mother of them all. They use encryption techniques to regulate unit generation and verify transfer of funds. Cryptocurrencies are the easiest to understand and can easily be used as a medium of exchange.
- Utility tokens
These tokens are used to give you access to a service also known as Network Access Token. They give you permission to do somethings and Ethereum was the first utility token.
- Securities or Asset tokens
These tokens represent an asset, product or shares in a business. For example, a plane token would represent ownership of the plane. These tokens enable distribution on P2P ecosystems on the blockchain hence making up on of the largest growth areas. They signify ownership and control of the asset.
How to buy a token during an ICO
New investors have no clue on how this technology works, here is a practical guide to help you get your hands on the tokens.
- Purchase Bitcoin or Ether
Go to one of the leading exchanges and wallet companies, make a purchase using a credit card or debit card. Ensure this is done a few days before the token you are targeting goes on sale.
- Transfer your purchased coins to your wallet
For one to participate in an ICO you need to have control of your wallet private keys and address. You do not want to enrich your exchange company by sending your crypto to their address.
- Participate in the ICO token sale
Once the crypto is safe in your wallet, you are ready to take part in the ICO. The ICO posts an address where the token sales money is collected, send your ether/bitcoin to that specific address. The tokens are then sent back immediately to your address.
- Store your tokens in a secure place
It is usually advisable to store your tokens in a cold wallet i.e. a wallet not connected to the internet. There are some hardware wallets specifically designed to store any cryptocurrencies. These wallets protect your coins from viruses that can be on your machine. If lost, it can be restored using a paper backup that helps you regain your private keys. Always have a piece of paper with necessary information to help you recreate your private keys at all time. You can also store your tokens in an exchange but ensure they are secured with a two-factor authentication.
As a digital token user, you pay for the tokens upfront to give the developers funds to develop the technology project. Once the technology works attracting more users, the demand for the token increases making you the original user to benefit from the increased value of the token. This has promoted the increase of FinTech industries worldwide resulting from the more than 100% returns in digital token investments.
With the crypto world going crazy on the token offering, traditional venture capitalists are at risk of being replaced in the fundraising process. It is a snowballing phenomenon that has everyone looking up to SEC to give the boundaries and lay out some regulations for this intriguing platform.