Many people have heard of cryptocurrencies or blockchain and know that «token» is also often mentioned in conjunction with these concepts. In our article, we want to consider what it is, how it works, and how a token differs from an ordinary cryptocurrency.
What is Token: the Concept Behind the Subject
A token is a digital certificate that guarantees a company's obligations to its owner, similar to shares on the stock exchange. In real-world applications, the term token is often used to define a specific data cluster stored on a blockchain. It records all the tokens associated with the name of a project.
A conversion of a physical asset into a digital unit is called tokenization. In essence, this process involves converting a tangible asset into a digital asset, represented by a single unit of currency, the details of which are recorded on the blockchain.
Where Can I Buy or Receive Tokens?
You can buy tokens through exchanges, manually or during the ICO. When a company issues tokens, this process is called ICO or Initial Coin Offering. Issuing their money opportunity and exchanging it for cryptocurrency allows startups to get the funding they need to launch and grow. This is similar to the crowdfunding model, in which participants fund the development of a project in order to receive accusations of future benefits from it.
However, before buying a token, it is important to understand the idea, reliability of a startup, risk assessment and recognition of authority, as well as to view the presentation of the project with a development strategy and limited prospects.
In the case of an investor, funds can be invested in a loss-making project or fall into network scammers. To purchase tokens, you need to do the following:
- Find a project;
- Go to the official page of the company;
- Visit the section of the site "Join the sale";
- Study the project documentation;
- Selective optimal crypt for buying tokens;
- Enter crypto wallet data;
- The address where the tokens will be sent;
- Send the selected amount;
- Check the transfer of tokens.
The most common tokens can be purchased on any crypto exchange, but new items may not be distributed on all such sites. Purchased tokens, necessary for studying with their course and research of the project, as well as confidence in the reliability of the crypto exchange. Largest selection of Poloniex and Bittrex return tokens. Whereas the opposite and loyalty to the novelties in the Cryptopia, YObit and LiveCoin market. Interestingly, in some cases, tokens can be obtained for free. Here are the most common activities:
- Airdrops – the company collects tokens for free to draw attention to the project. For example, free Ethereum (ETH) issued EOS (EOS) tokens to all ETH holders between 2017 and 2018.
- Bonuses for participating in the network. Projects can issue bonus tokens for active participation in the network. For example, in Stellar (XLM), rewards can be received for participating in the network as a validator or adding your assets to the stablecoin pool.
- Contests. Some projects hold contests or contests with the issuance of offers of tokens as a reward. For example, Binance (BNB) holds annual trading events with the issuance of many Binance tokens as a reward.
- Referral Programs. The designation can serve as a Crypto.com payment platform, which offers a referral program with bonus tokens to attract new members to the network.
Main Categories of Digital Tokens
Currently, there exists no singular academic classification. However, tokens can presently be categorized into the subsequent types:
- Decentralized. Created to support blockchain operations on decentralized platforms.
- Non-fungible. A form aimed to store one-of-a-kind digital assets.
- Backed by real assets. Less volatile alternatives to the majority of cryptocurrencies.
- Utility. They have used this to gain access to special websites and services.
- Regular. Same as cryptocurrencies.
- Security. Bough to back up a regular market deal.
- Private. All operations within the blockchain are anonymous.
- Exchange. Emitted by a crypto asset exchange company.
To Profits and Beyond
Many people seek to earn tokens. They get acquainted with promising projects, choose the best startup and become owners of assets by any of the methods described above. Up to 5 ICOs appear within a week, which gives room for investment.
However, not all ideas can be implemented. Often, it didn’t even reach the point of placing coupons on crypto exchanges. The earnings algorithm consists of the following stages:
- Acquisition of selected coins at an affordable price at the start of the project or after placement on a crypto exchange.
- Expecting an increase in the market value of the token.
- Selling an asset on the stock exchange and making a profit.
- This method can be repeated several times for completely different tokens. In some cases, it is possible to receive dividends or other profitable offers, depending on the token type.
- In the early stages, when the prototype of the project is still emerging, it is impossible to assess the project's prospects, so there is a risk of investing in a startup that may not meet expectations.
How to Store Digital Assets?
You need a reliable storage place if you have decided to buy blockchain tokens. Some crypto enthusiasts prefer various crypto wallets, while others trust their funds to exchanges. The latter is obviously riskier yet makes it easier to trade your assets.
Self-storage is the main requirement for the full ownership of crypto assets. It involves finding coins in the wallet and managing them from there.
Cryptocurrency wallets are an interface for interacting with blockchain networks and the assets that are in them. There are several types of cryptocurrency wallets with their own advantages and disadvantages. They differ from each other in the level of security, degree of control over crypto assets and ease of interaction.
Is It Possible to Create Your Own Token?
The decision to convert a product into a token can pose a significant consideration for the manufacturer. Despite the potential benefits, it is prudent to contemplate the potential ramifications. However, incorporating the acceptance of cryptocurrency payments into an online store can undoubtedly attract forward-thinking customers who are willing to purchase goods with digital currency.
For any inquiries regarding implementing our user-friendly crypto payment gateway, please do not hesitate to contact our support team!
