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What is ICO token? A complete token guide

Posted Nov 23, 2017

Tokens are identified as digital assets of a corporate organization or individual which are owned by the investor and can be sold on exchange sites or transferred to someone else. A token is a fraction of the estimated worth/budget required to complete a particular blockchain related project. This value can also be likened to shares in a corporation during an IPO, as they play similar roles in crowdfunding projects.


The earliest trace of token operations on the blockchain was with the creation of the bitcoin network, where miners were rewarded with bitcoins by using their computer CPUs to execute the operations of the blockchain. While these operations were expensive, tasking and demanding in terms of power and technical resources, the consolation was the reward obtained with every concluded transaction on the network.

Moreover, other projects modified the bitcoin system by selling out their own coins in exchange for fiat and bitcoin to fund their projects. Once the projects were completed, the tokens (stakes now owned by prospective investors) were converted back to bitcoins through cypto-exchange platforms
Now, tokens have become the central identity of every new decentralized project, with the aim of distributing these coins to proponents of their project either through buy-in or sponsored partnerships and bounty campaigns.

How are tokens being created?

The world of cryptocurrency revolves around coins and tokens. We all have heard about it. The most common coins around are Bitcoin, Ripple, Ethereum and Litecoin. But lately, there is a new breed of currency floating around, which came with the emergence of various ICOs lately. The new kid on the block are the tokens. The most common ones, the ERC20 run on the Ethereum blockchain. With so many of these items currently on the market, one must be thinking, how are they created? Why are there many of these species lately? Well good news, you came to the right place as I will discuss how these tokens are created.

Tokens are basically assets or a representation of it.  These can be found on the blockchain and can be anything from points, stocks or crypto coins themselves. The most common blockchains are Ethereum and Waves, with the former having a lot of variations of them. The Ethereum made it easier to create tokens with the aid of smart contracts. Some projects on the Eth chain actually have pre-built templates for creating ERC20 units. All you need to do is get the resources for it on github, rename it to whatever coin name you want, create a contract address, then publish it on the Ethereum chain. It is as easy as clicking 1, 2, 3 on your computer as long as you can follow instructions.

Once you have completed the template and uploaded it to the Ethereum chain, the system will allocate the required assets under your contract address. Some places such as Bancor actually offer you APIs and SDKs making your life easier if you are planning to start up a company and planning to hold an ICO. On some cases, if they think your company is going to get big, they will even create the tokens for you.

Technologies used in building tokens

The most used technology for token creation is the Ethereum. Its technical framework has a more generalized protocol than that of Bitcoin Blockchain. While it is difficult and challenging to build an entire blockchain from scratch, startups, prefer to jumpstart their projects by utilizing decentralized applications created on the Ethereum. The source code makes it possible to accommodate a wide range of ICO coins and this is done with almost no need of understanding the programming skill used in the development of a blockchain technology.

With the advent of Ethereum technology, the rise in tokenized assets has been astonishing. The Ethereum network makes it easy for any blockchain enthusiast and investor to create applications for their projects on the platform. In return, Ethereum charges gas for the operations and transaction within its network.

Other ICOs, have stuck with other preexisting platforms like WAVES. Waves, an open-source blockchain platform, eases the creation of custom cryptocurrency with just a single click. This functionality is included both its core software and web wallet. Users can also create, transfer and exchange tokenized blockchain assets.

The bottom-line criterion for the creation of tokens is dependent on the product or services proposed by the intended project. A project can decide to build from scratch a blockchain network in order to offer unique services not currently offered on other pre-existing platforms, and issue coins within its network. Others may choose to identify with a network whose algorithm concept aligns.

The following are examples of consensus mechanisms that a particular project may decide to identify with:

  • Proof of Work
  • Proof of Stake
  • Proof of Activity
  • Proof of Service
  • Proof of Capacity / Proof of Space
  • Proof of Importance
  • Proof of Burn
  • Proof of Elapsed Time
  • Hybrids

It is expected for other blockchain technologies to offer asset tokenization services down the development of the network.

How to sell / buy Tokens on the exchanges?

Investments built around tokenization are tricky and take on precise and experienced trading skills to execute profitably. Since the market is currently unregulated, coins have no securities nor legal backing, which present quite a challenge in the digital world economics.

ICO Projects usually announce their sales of coins with a date and period through which the offer will be opened. This offer comes with a lot of promotional instruments to persuade investors to buy-in at earlier dates. For example, discounts on prices, profit sharing indexes, opportunities to sell part of tokens awarded before the cryptocurrencies hit exchange markets.
The ideal way to buy tokens is to research available offers on sites that publish the lists of ICOs, and give a general overview of product and services proposed. An alternative approach is to buy from already existing host networks such as Ethereum, Waves, etc.

Trading of cryptocurrencies are synonymous to FOREX trading in the SEC approved stock exchange markets. Buying of shares can be done by transferring an equivalent amount of cryptocurrency or fiat (as indicated by the project) to an address on the host blockchain network during ICO sales; in exchange, at the conclusion of the sales campaign, investors are rewarded with coins sent to custom wallets on their respective ether or waves network. This can then be traded on accepted exchange platforms once the necessary protocols are fulfilled.

Safe trading involves the use of escrow systems. Escrows are third-party institutes created to facilitate the smooth transition of business transactions. Funds are transferred to escrows account and are released intermittently on account of consensus. Smart contract technology also used to ensure that transactions involving tokenization are smoothly conducted.

Investors who purchase tokens can wait for the worth of their shares to appreciate and transfer these coins to exchanges sites where they are listed as tradable and exchange them for other cryptocurrencies.

One very important observation is that the relativity amongst cryptocurrencies are leveled, as one can exchange tokens for other cryptocurrencies once price index variations and speculations are taken into consideration.