Almost every day you will read something on the internet or the news that concerns ICO, popularly known as dealing with crypto tokens. The cryptocurrency industry is massive, and there are a lot of things that you need to understand if you are wondering about finding a place in this world.
Let’s familiarize you with Initial Coin Offerings (ICO). Here is everything you need to know about the crypto tokens and how they work.
What is an ICO?
The ICO, fully named as Initial Coin Offering or Initial Currency Offering, is funding that particularly uses cryptocurrencies. Even though the name suggests that it is a coin, it is actually NOT a coin, but more like a token or a symbol of contract. It values similarly to money but serves more as a medium of ascribed value transfer.
These tokens are an entity which has a value that is specified particularly to it. So, if a person working for a software company is offering the tokens, one token can be equivalent to the yearly membership of an application projected by them. Or if it is offered by a celebrity singer, it might be an equivalent to a concert ticket or merchandise. Some of the traders in the crypto world also choose to create their own tokens and whoever holds the token is able to associate the work that they need from a trader by “tokenizing” the exchange.
The initial coin offerings have taken the world by storm. Every day we come across a new company participating in the activities of offering tokens and the token holders can use these tokens to buy or request the entity that is subjected for it. One of the main reasons behind it is because these tokens don’t depend on the ever-fluctuating market dynamics.
How does ICO work?
Now that you are aware that these tokens are not coined, but an entity of a binding contract, let us talk more in detail about how these works. Since they are not dependent on market dynamics, there is still a process of creation, acquisition, and transaction that it needs to exist in a contract. It is, however, not free. If you wish to buy or sell a token, there is “gas” processing which will tell you how much you have to pay as per the “gas” spent.
Here is how the Initial coin offering work:
- Creation – The first step is the token creation, and this is where the company offering these tokens has to create a set of rules that explains the amount and value of these tokens and the terms and conditions.
- Acquisition – The second step is buying the token by whoever wishes so. It works similarly to a vending machine, whereby you select the token you want to buy, check availability and eligibility, and give you your token.
- Transaction – The platform offering you the tokens, will also provide you with token wallets where you can store and transfer your tokens by the book. It means that if you wish to transfer your token to someone else, the wallet helps in doing so by following all the rules and these wallets are designed in a way to automatically update and refresh the records.
Can you trade ICO?
The trading of these tokens works similarly to cryptocurrency coins. However, the terms and special conditions surrounding these tokens are complicated as there are specific instructions in the ICO contract which you need to note. It can say specifically when and how you can trade these tokens and to whom, in some cases.
For trading the tokens, it is important that you are registered on the exchange that is designed particularly for buying and selling the tokens.
How are crypto tokens different from crypto coins?
A common confusion between the two can sometimes play tricks on you. However, the major difference that you need to remember is that the coins are a “currency,” whereas the tokens are not. For trading or issuing cryptocurrencies, one of the basic requirements is to create a Blockchain. But unlike for the crypto tokens, you use an existing platform for issuing them, most popularly Ethereum.
The information on this is endless, but we have tried to bring you the ultimate guide for understanding what the tokens are and how they work in the simplest words possible. It is very important that you regard all the information you read in the contract for ICOs as it is what makes it more complicated. Now the next time you read something about an ICO, you would know what to do if you are looking for venturing in these tokens!