ICO Tokens – What are they Really?
ICO tokens are fundamentally shares of ownership in the new startup companies in the blockchain technology era. They work very similarly to classic shares, and their ICO (Initial Coin phase. Tokens are expected to be used more and more for funding new projects and startups, as both entrepreneurs and investors prefer token sales rather than any other classic method of funding.
Good tokens solve a problem and provide some kind of service, this is why people want to use them. This goes above and beyond simple investing. Always be sure to check that your chosen token solves a real problem, whether it is a token of exchange of value, a utility token or any other type of token. Good concepts of tokens are usually invented by:
- Former coders
- Academics in various industries
- Financial experts
- Other experts in various fields of science
As long as a token comes from an ICO where the team includes such people, you are likely to be investing in a good token, because these people do a lot of research before launching their ICO token. They want to make money as much as you do, if not more so. And there’s no room for big mistakes. The Ethereum token itself is a complex token which covers many aspects (smart contracts in particular), and upon which many other ICOs are based, in terms of coding and technology.
History of ICO Tokens
ICO tokens were actually envisioned by J.R. Willett as early as 2012, and he first introduced the concept in a Bitcoin conference in 2013. The idea was to help new entrepreneurs raise money through token sales, based on the Bitcoin protocol and its security. ICO tokens are always, at first, a way to raise money, only valuable companies will see their tokens eventually become digital money to be broadly used. So the terms coin and token may be confusing, but really they are all tokens. If a token becomes very popular and is accepted in many places as a medium of exchanges, it starts to function pretty much like real money. Nonetheless, J.R Willet thought of tokens merely as a way to fund startup projects. The idea proved to be very successful, because not all new small startups can attract venture capitalists, or use crowd funding sources. But electronic token sales, through the platforms of Bitcoin or Ethereum, are much better, and 1000s of people can buy small quantities of these tokens. There’s no need for large investments on the part of an individual.
ICOs and tokens also have the big advantage of security and ease of use, which traditional funding options don’t offer. Investors can sell their tokens at any time and move onto the next investment, because today’s crypto market offers the tools and the liquidity to do so.
Type of ICO Tokens
In general there are 4 different types of ICO coins I can think of, these are of the following types:
- Tokens for exchanging value (digital money)
- Utility tokens (such as Golem and others, where a service is provided)
- Equity tokens, such as participating in real estate and other investments
- Reward tokens, where users are incentivized to perform certain tasks to earn these tokens and then trade them for money.
Tokens for exchanging value are the tokens that will inevitably become digital money to some extent, tokens such as Bitcoin, Ethereum, Litecoin etc, these are forms of digital money because they facilitate exchange of monetary value.
Utility tokens such as Golem, where the contributors get paid in tokens, and the users pay in these tokens. This is quite good in my opinion, because it allows users to become investors in the crypto market simply through participation. Golem for example is a startup where contributors rent out idle computing power and get paid by the users, in Golem tokens.
Equity tokens are by far the greatest category, since all kinds of fintech startups in the crypto space make it possible for small investors to somehow invest in major crypto coins and classical assets, and even in real estate, where their investments will be denominated in some kind of equity token. For example Bitconnect works that way, and has its own equity token.
Reward tokens are the least known and newest category of tokens, it is expected to be successful because there are needs in the market for immutable reward schemes.
Why the Price of ICO Token Goes Up and Down?
Tokens are very volatile because they are new, and all new markets are inherently volatile. This volatility continues up until the market of a token becomes too important, large enough and liquid enough. As liquidity increases volatility decreases. On a day to day basis, the price of a token goes up and down as people make large purchases or sales of that token, what really causes these movements is the sudden transactions involving a huge number of these tokens.
If you plan on buying exchange of value and equity type tokens, then it’s a good idea to spread your purchases over several weeks, and not be tempted to invest all of your money at once. Because by buying a smaller number of tokens every week, you will achieve an overall better entry price.
If a token rises too sharply in price, it’s a good idea to wait for few days to see what happens, it’s very probable that there will be a pullback before the rally continues. This is because there’s always some profit taking by earlier investors, and no token can really rally straight without hitting some brick walls, because market adaption is growing slower than investors expect.
How Can I Buy Tokens?
All ICO tokens can be purchased at the actual ICO website page, while the ICO is still running, usually using a Bitcoin or Ethereum wallet. But after the ICO has expired, you can simply look the token up online and see the exchanges where it is listed. And then buy it in any quantity at the exchange directly.
You will always need major crypto currency wallets, such as Bitcoin or Ethereum. If you are totally new to the Cryptomarkets you will need to first fund these wallets using fiat currency, such as Euros or US dollars. There are exchanges that allow you to buy Bitcoin or Ethereum using your local currency, some of these exchanges are Coinbase.com, Bitstamp.net, Kraken.com and Bitsane.com. These exchanges accept payment by bank wire, credit or debit card, or even Paypal.
When is it the Best Time to Sell Tokens?
Usually a token will go up in value as its use by people increases and it becomes more and more popular. This is called market adaption, and is a very important indicator for all crypto markets. A token goes down in price when for some reason market adaption begins to shrink, or seems to slow down. As far as I can tell this may happen when there’s a technical problem which needs to be solved, or when exchanges cannot cope with the number of new users, and there are long delays in bringing new investors to the crypto markets. Any kind of indicator that tells you that market adaption is slowing down, even for the short term, is an indication to sell your token and waiting to see what will happen next. You can watch market capitalization trends and news related to each specific token, to evaluate its adaption development.
Best ICO Tokens for 2018
There are several good tokens to hold in 2018, such as NAGA, United Traders, Golem, and even IOTA, Cardano and few others such as Syscoin and Cybermiles. But there’s a difference, IOTA, Cardano, Syscoin and Cybermiles will not really gain in value for at least one more year, so it could be a long wait for investors. Whereas NAGA and United Traders will likely start rallying substantially in 2018. In any case be sure to check the following before investing in any ICO token:
- How unique the concept is
- What the ICO offers (ie solves a problem)
- Market adaption trends