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What is a token (cryptocurrency)

Tokens

A token is a virtual unit that replaces digital coins. Typically, they are issued by a company that raises funds for its project or other purposes. It is a digital asset received in exchange for money.

The concept of tokens has gained popularity. The implementation of this idea eliminates the complexity of settlements between market participants. Sometimes tokens are also understood as cryptocurrency, but this understanding is erroneous, because there is a significant difference between them. In this article, we will explain what cryptocurrency tokens are, what purposes it is used for, and describe different ways to get tokens.

Tokens can be used in the following cases:

  • payment for goods and services;
  • raising funds for a new project;
  • crediting.

Various services and mobile applications often use their own internal currency for payments. This is done to protect themselves from sudden changes in exchange rates. Tokens are ideally suited for such a role. These digital assets are also used to pay for goods and services. Some companies resort to such settlements with their customers and partners.

The implementation of a new idea requires finances, which are not always available to its authors. A cryptocurrency project becomes the way out. The company is engaged in the initial sale of tokens and attracts the necessary investments. Anyone can invest their money in the startup. The owner of such tokens is entitled to a share of the project’s income.

Tokens can be invested in projects with a high level of liquidity. Such tokens resemble loan bonds. Using them as a financial instrument, you will get income after a certain period of time. The guarantee of success in this case is quite high.

Tokens come in 2 types: Utility (useful) and Security (investment). Assets of the first type allow you to buy goods and services, to pay for various services. Tokens of the second group are designed for the implementation of investment interests. For example, the owner of these assets can have the right to receive a portion of the profits.

Distinctive features of tokens

Token Cryptocurrency is an internal unit used for settlements in the blockchain system. A token is just a digital asset received in exchange for money.

Cryptocurrency is produced by means of mining, which leads to a kind of decentralization. Unlike digital coins, tokens are issued by their creator.

Another significant difference is the value. The price of a particular cryptocurrency directly depends on the available supply and demand. The value of a token is determined by the assets invested.

Some experts note that it is much easier to work with tokens than with cryptocurrency. However, the scale of use of digital coins is still wider. Simply put, tokens are not money itself, but a unit of information.

Can I buy tokens?

Creators of tokens are interested in these assets being purchased. That is why the purchase of such assets becomes possible. They are sold through ICOs, on exchanges, and by individuals.

Today you can see many offers to buy various assets, including tokens, on the web. But you better deal with reliable platforms with a good reputation. Below are examples of platforms that allow you to safely trade tokens of most major cryptocurrencies.

Buying tokens from individuals is much riskier. The chance of running into fraudsters increases significantly. That’s why it’s better to buy tokens on reputable platforms or as part of a new cryptocurrency project.

ICO tokens

If you are going to invest in an ICO, carefully assess the prospects of a particular idea. Many projects are profitable only in words, but in reality turn out to be far from these optimistic statements. We recommend that you pay attention to the following nuances:

  • reliability of the company;
  • the attractiveness of the project for the target audience;
  • the experience and reputation of the it-specialists;
  • the quality of presentation;
  • the development program for the future.

It is better to deal with a reliable company with qualified specialists. Beware of people who do not inspire confidence in you. Of course, a good presentation and a real development program will not guarantee success. But at least you can see that the company is serious.

Do not contact with the dubious projects, which are based on the banal principle of the pyramid. You need to understand exactly what the company does.

The process of buying tokens at an ICO usually involves the following algorithm:

  1. You find a promising project.
  2. Go to the ICO page.
  3. Go to the “Join the sale” section.
  4. Familiarize yourself with the documents about the project.
  5. Choose a cryptocurrency to buy the tokens.
  6. Enter your wallet number.
  7. Specify the address for enrolling tokens.
  8. Send the required amount to buy digital assets.
  9. Checking the fact of crediting.

The details of this process may differ slightly in minor points, but the general principles remain the same. So be careful not to be deceived.

The convenience of tokens

Imagine a situation where you are constantly buying the same product but at a different price. Let’s say it’s dietary supplements. This happens because the seller sets the price based on the current exchange rate of the dollar. Therefore, the amount in rubles that you pay will be constantly changing. This can also happen when paying for other goods or services.

When tokens are used for payment, these price fluctuations can be avoided. This increases customer and customer loyalty. The seller sells his goods in tokens, which can be exchanged for monetary units. Practice shows that this approach often leads to increased sales. However, you need to consider how tokens will be appropriate in a particular case.

Popularity of Tokens

The popularity of these units is not only due to their benefits. There are numerous calls to invest in various tokens today. Some of these assets are presented as especially profitable. As a result, a trader faces a difficult task of distinguishing between the really promising offers and aggressive marketing.

You can make good money on tokens, if you choose the right instruments and understand how to use them. That said, even the most effective tokens will not be the same in every case. One trader will gain income from virtual units, while the other will face losses.

Switching to token settlement is another dilemma. For some service managers, this can lead to serious profits. For others, such a move will not lead to any positive results. In this case, it’s hard to accurately predict the future scenario.

Token Exchanges

As mentioned earlier, tokens can be purchased on cryptocurrency exchanges. Popular tokens are present on almost all exchanges. At the same time, new assets can be present on only one exchange. You should definitely keep this point in mind.

When buying digital units on a cryptocurrency exchange, pay attention to the following:

  • the dynamics of the token’s rate;
  • news about the company issuing the assets;
  • the reliability of the site.

An asset can seriously increase in price or noticeably decrease in price. You need to analyze what has happened to the exchange rate of the token and predict future developments. If the unit turns out to be promising, it is worth buying. If the asset has lost its initial appeal, however, such an investment will be meaningless.

Study the news about the startup carefully to avoid the problem of buying the asset at the peak of its value. Be guided by cold calculations and objective analysis. Do not invest in tokens in a fit of emotion, as it is a poor trading aid.

Getting tokens for free

You can get these digital assets for free. For example, you are a good programmer or other professional helping with a new project. In this case, the company can use the tokens as a reward for your work.

Storage of tokens

Special wallets with digital signatures are used to store virtual digital units. Usually they are developed by the creators of tokens and are provided for free. But there are objective difficulties to be considered here:

  • there is a risk of loss or theft of the key;
  • information about the wallet does not have a high level of confidentiality;
  • there are difficulties with scaling when accounting.

Creating tokens

Creating tokens is much easier than cryptocurrency. This explains the large number of virtual digital assets on the market. In addition, there are tools available today that allow ordinary users to issue tokens.

It is enough to choose a suitable constructor and go to the creation of a smart contract. It reflects the moments regarding the possession of tokens, their transfer, replenishment of the balance, and others. To issue, you need to specify the name, symbol and quantity, and then the information about the new digital units is added to the network.

Earnings from tokens

Investing in tokens is a good way to multiply capital. If you choose a successful project, the initial value of digital units can greatly increase. Experts believe that it is better to pay attention to tokens at a reduced price, sold before the main event. At this point, it is not clear whether the project will succeed or not. That’s why you can turn out to be a serious winner or lose the money you invested.

To assess the prospects for a particular ICO, use analytical tools. It is worth paying attention to the special resources engaged in monitoring such projects.

You can also trade tokens on the exchange, profiting from the price fluctuations of these assets. In this case you first buy them and then sell them at a higher price. But here you also run the risk of losing money, because nobody guarantees an increase in value.

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