A token refers to a symbol of a contract signifying a specific value. The holder of an ICO token will possess all the rights and powers to use it according to his freedom. Ethereum has emerged as one of the popular platforms for developing smart tokens.
A step by step explanation of the full contract cycle involved in ICO token development
Once the basic aspects such as the number of tokens, the value of each token, and other conditions have been figured out, the stage will be set for creating the token. The platform will act as the smart notary for all the future transactions to be executed.
The ICO token can be bought or sold by using the token supported wallet. The wallet’s activity will be constantly recorded and updated on the blockchain network.
Transaction fees will have to be paid in the form of a gas fee. It will vary depending on the number of transactions waiting in the network.
The different types of ICO token creation
- Utility tokens – It refers to tokens that can be used for purchasing different products and services. The price of the token can rise depending on its popularity. Early buyers of a token will benefit from its low price.
- Equity tokens – The holders of equity tokens will be entitled to a regular payout of dividend or commission. They will also get voting rights to influence the decisions made by the company.
- Combo tokens – It refers to a token which can belong to more than one type. It can be a combination of tokens and stocks and can also be backed up by a popular fiat currency.
How to trade ICO tokens
- Every trader has to register on an exchange for buying and selling tokens.
- Read all the conditions specified in the contract before executing the transaction.
- Register for the Ico development being undertaken through the official website of the project.
- Choose whether to buy the tokens in either Bitcoin or Ethereum, the two leading and most commonly accepted cryptocurrencies in the market.
- Move your tokens to a software wallet and keep a password to protect it from unauthorized access.
- Send your cryptocurrencies to the campaign’s wallet address.
- You will also be required to pay gas fees (transaction fees) according to the amount mentioned in the project’s website.
- The newly bought tokens will be sent to your wallet address immediately after the end of the token sale.
- Wait for a couple of days to receive all your tokens.
- You will need to manually redeem your tokens after receiving it.
- You can transfer the tokens to a more secure wallet by paying the transaction costs for sending money from one wallet to another.
Who can purchase an ICO token?
Anyone who has some Bitcoins or Ethereum and a strong internet connection can participate in an ICO by paying a minuscule fee. Investors from China and South Korea cannot participate as ICO’s have been banned by the governments in the respective countries. Hence, ensure that it is legal in your jurisdiction before deciding to participate.
Where will ICO tokens be issued?
Most of the projects choose to issue their tokens on Ethereum as it is popular, convenient, and very easy to use. However, it does suffer from some scalability issues which developers are planning to solve by issuing a second version soon. Other platforms include the likes of Waves, EOS, Cardano, and Tezos.
Check out the number of transactions they can process per second before giving the green signal to a network. Issuing tokens on Ethereum requires complete proficiency in the Solidity programming language.
Waves have their own wallet, a decentralized exchange, and an exclusive tool to release tokens. It is built using the Scala programming language.
Why most of the ICO tokens are not listed on exchanges
Exorbitant fees need to be paid for obtaining a listing on a well-known crypto exchange. In case all the tokens are not sold out to investors, the remaining tokens will have to be burned. It indicates that the demand for the token in the secondary markets will be very low. Sometimes, exchanges even after pocketing hefty charges may delist your token without issuing an official warning. Regulatory pressure can also affect a token if it is distinguished as security. Hence, it is important to create genuine demand for the token before listing it on an exchange. The Securities and Exchange Commission (SEC), the regulatory body for ICO’s in the USA have started cracking down on unregistered tokens and securities recently.
Due to the irreversible nature of digital currencies, the security and integrity of private keys issued for the ICO tokens are complicated as the users will not be reimbursed if something goes wrong. The risks are high in case the keys get lost or hacked. The tokens cannot be retrieved once they are gone.
Volatility in the market can affect the price of tokens triggered by panic sell-offs by investors. Since the token sales are not uniformly regulated in the industry, investors cannot protect themselves with the help of insurance, unlike publicly traded stocks.
Hence, only if ICO tokens comply with the KYC (Know Your Customer) and AML (Anti Money Laundering) guidelines issued by regulatory authorities, the project will get a stamp of legitimacy, public perception will be boosted, and credibility will be gained. Extensive due diligence undertaken by potential investors will help in safeguarding from fraud and security loopholes in unregistered ICO tokens. This will ensure certainty in their turbulent journey in the ever-changing cryptocurrency market.