What is an ICO token and how does it work?

The article was written By Mickael Mosse – Blockchain and Cryptocurrency Expert

What is the definition of a crypto token?

According to Mickael Mosse, It is an entity with a value specified by the eminent. If we talk about a popular startup, a token can be equal to a dress or an annual license of a program in the case of a high-tech startup. You can even post tokens of yourself and a token holder can purchase an hour of your work with the token. You can "tokenize" everything.

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What is the distinction between cryptocurrency coins and tokens?

According to Mickael Mosse, This is a difficult section. The easiest answer: tokens are not a currency. It does not require making a Blockchain to advertise tokens, which is essential for a cryptocurrency, but it uses one that exists (usually Ethereum, which was initially created as an interface for smart contracts and evolved to become a currency).

A currency is money like, something that defines value and serves as a transfer of value.

A token is a symbol of a contract, the value is not dependent on mining, the value of gold, or any dynamic market method. A friend of mine once gave me a note saying that he will always make me a coffee on demand. He's still doing it, after 10 years, it was an acceptable sample!

What is a symbolic contract and how does it work?

Mickael Mosse points out that, Ok, a btw token is not a btw coin, I have it. But still, should something regulate your transaction, value, etc.? How does it work? You need an interface for that. Let's take Etherium as an example since it belongs to the most popular interfaces for capable tokens.

Here is the finished period of the contract:

Token creation: a company writes the basic rules (number of tokens, token value, special conditions). Once built, the interface will serve as a very capable notary for all future transfers, making sure all conditions are met. says Mickael Mosse.

Acquisition of tokens: when someone wants to acquire a token, the development is truly similar to acquiring a coke in a vending machine. He approaches a machine, drops the btw coin, and presses the "Coca-Cola" button (choose the token you want to buy). The machine checks if there is “coke” in stock and if you are eligible to purchase it. If all is well, you get your drink (or token in our case). The machine says "Have a good day" and updates the inventory information (one coke at this timeless).

Token transaction: assuming you have a coke, you can pass it on to your friend. For money or free. In token truth, you have your token wallet that works with the same interface that issued the token. You can transfer your token using the wallet. And again, a virtual notary, driven by a capable contract, will make sure you do it according to the rules. Also, all wallet activity is logged and updated all the time.

Is this all free? No Someone must make the payments for the notary, the vending machine technician, and the distribution of coca-cola. On the planet of btw tokens, the processing operation is called "gas." So whenever you ask to buy or sell tokens some "gas" will be spent and you will pay your fee.

Note: the quota is not static. It is dependent on a sequence of waiting transfers. You can determine the maximum limit you are willing to pay for your fuel. If the value of the token is, say, $ 10 and the gas fee is $ 20 that is not an acceptable offer, is it? So you can say you pay no more than $ 2 for your gas, click “send” and find something else to do until then. The system will serve the highest gas promotions first, and yours last when the time comes. There is an opportunity that you will wait a long time (if others are willing to make the payments more than you). But you can always turn up the gas cap.

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Token types

Let's look at the most recurring types of tokens.

Token - token (utility tokens), the most popular type

Do you remember amusement parks from childhood? Roller coasters, carousels, hot dogs, and cotton candy? At the entrance, you have tokens to buy food and enter the attractions.

So let's say a company is an amusement park and with the tokens, you can purchase different services in the same way that you do with carousels and hot dogs.

Right now, for the analogy to be flawless, let's say you can purchase a lot of tokens before the park officially opens or when it opens. If the park becomes habitual, its tokens will be considerably more expensive. Like $ 10 for a hot dog. But a capable kid who bought the chips before the opening will still enjoy their $ 1 meal.

This is basically the initiative behind the issuance and acquisition of tokens. But if at the amusement park I buy the chips at the entrance, where do you get a cryptocurrency token?

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The answer is ICO - Initial Coin Offering.

Token - shares (equity tokens)

In this situation, ICO is totally equal to IPO. In most cases, token stocks are issued when a startup does not need cryptographic technology.

In this situation, the token events will earn fixed dividends or commissions. They may also take part in company elections. All this honor for supporting the venture at the beginning of its history.

Token - credit

This is a loan; A headline provides a startup. It is another way to raise money. Among other things, invest X to get X + 10 percent.

Token - combo

If you are not totally confused, you are now: sometimes a token can be part of more than one type. Among other things, the Sia and Digix tokens are tokens and shares. And Steemit has all three types of tokens (Steem, Steem Dollars (SBD), and Steem Power (a denomination of VESTS).

How do you exchange tokens? 

Mickael Mosse points out that, This part is very similar to btw coins. You have to sign up for a trade to buy and sell tokens.

The conditions of the transaction have the possibility of being truly complicated: the contract can integrate multiple rules such as "you can sell only before a specific date" or "after a certain date but only for a specific supplier". So when investing in tokens, you must read the "lower case letters" very intensively.

Article from mickaelmosse.com