Cryptocurrency tokens. What is it and how do they appear?

Cryptocurrency tokens. What is it and how do they appear?

Tokens have gained popularity having become a new generation crowdfunding tool called ICO. Read further in the article about the notion of tokens, their types, and application areas.

What are tokens

Token is a cost and calculation unit most frequently used in ICOs. This interior asset of the project is a kind of an analog of securities. Tokens look like an array of characters used to identify users.

How tokens differ from cryptocurrency

The use of tokens is restricted by a specific project, but they are multifunctional, as they can be used as a currency inside the project, an indicator of securities ownership, or a right to vote for changes in the project. Here lies their main difference from cryptocurrencies: the latter have one function (exchange for goods and services), but can be exchanged on different platforms irrespective of their origin.

Types of tokens

Depending on the peculiarities and assignment, two main types of tokens are distinguished:

  • utility tokens that allow the owner to buy services and service units. They are used to finance projects that have a common infrastructure;

  • security tokens that give the owner the right to realize investment interests. It can be the right to participate in the legal entity, capital, revenue, creditor status, etc.

Tokens have standards without which they cannot fulfil their functions. There is a great number of standards, but most of them are concentrated on the Ethereum platform. ERC20 is the most widespread standard.

How to buy tokens

There are different ways to buy tokens depending on their type. For example, the purchase of tokens of ICO projects is an opportunity for investments. Users can buy tokens at several stages of an ICO. At the pre-sale stage, the price of tokens is lower than at the main crowdsale. However, such investing bears risks, as at first it is hard to understand the concept of a startup and what prospects it has.

In addition, users can buy tokens on exchanges, which is less secure. It can be done when tokens are added to the list of trading pairs. A trading pair is the mark of the project’s recognition by the market.

Where to store tokens

Tokens can be stored in the same way as cryptocurrencies. Owners can use special wallet applications for their storage. As a rule, these apps are part of the infrastructure of the tokenization platform.

Wallet types

There are two types of cryptocurrency wallets: hot and cold.

A cold wallet is a physical device that does not require Internet connection. This type of storage is not very convenient, as to make a transaction, one will have to spend much time to deal with the device.

Unlike the cold wallet, a hot wallet provides a quick access to cryptocurrencies online. It is quicker and easier to use – online services usually have a rather user-friendly interface, and manipulations with currencies are conducted in real time. Some hot wallets are available in the desktop version only, while others have a mobile version.

However, hot wallets are less secure than cold: while a malefactor has to steal the medium to hack a cold wallet, one requires only the Internet connection to hack the hot wallet.

Top wallets to store tokens

Below you will find the most popular wallets compatible with Ethereum ERC-20 tokens.

MyEtherWallet – the most popular wallet to store ERC20 tokens. It uses an open source code written in JavaScript. It is available in the web version, and the download is not required.

MetaMask – a plug-in with the permission for Chrome and Firefox. It is convenient to use, allows transferring tokens through a browser, and opens elements of web3.0.

Mist – a client of Ethereum wallet that supports ERC20 by default.

Parity – a popular mobile Ethereum wallet that supports almost all ERC20 tokens. It allows creating a new wallet or importing the seed and address of the old one. The security of this wallet depends on the safety of your smartphone, as the information of the app is not transferred to the server. Parity is available for Android and iOS.

Every wallet and cryptocurrency has advantages and disadvantages. You should not take a decision basing just on the popularity of the solution – it would be better to rely on your own needs.

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