What Is An ICO Token And How Does It work? | Empirex Capital

What Is An ICO Token And How Does It work?

You have reached an article of great importance in the cryptographic universe and with the help of Empirex Capital we are going to explain in a simple way what is related to ICO Tokens and their characteristics.

What’s the definition of a crypto token?

It's an entity with a value specified by the eminent. If it's a fashion startup, one token can be equal to one dress or a yearly license of a software in case of a hi-tech startup. You even can issue tokens of yourself and a token holder will be able to buy an hour of your work with the token. You can “tokenize” everything.

What’s the difference between cryptocurrency coins and tokens?

This is a difficult part. The easiest answer: tokens are not a currency. You don’t need to create a Blockchain to issue tokens, which is a must-have for a cryptocurrency, but you use an existing one (usually Ethereum, which was originally created as a platform for smart contracts and evolved to be a currency).

A coin is a money equivalent, something that defines value and serves as a value transfer.

What is a token contract and how does it work?

Ok, a token is not a coin, got it. But still, should something regulate it’s transaction, value etc? How does that work? You do need a platform for it. Let’s take Etherium as an example, since it's one of the most popular platforms for smart tokens. Here is the full contract cycle:

Tokens Creation: a company writes the basic rules (tokens amount, token value, special conditions). Once created the platform will serve as a very smart notary for all the future transactions, making sure all the conditions are carried out.

Token Acquisition: when somebody wants to buy a token, the process is really similar to buying a coke in a vending machine. You approach a machine, drop the coin and push the button “coke” (choose the token you want to buy). The machine checks if there are “cokes” in stock and if you are eligible to buy it. If everything is fine- you get your drink (or token in our case). The machine says “have a nice day” and updates the stock info (one coke less now).

Token Transaction: In case you have a coke, you can just pass it to your friend. For money or for free. In tokens reality, you have your token wallet which is supported by the same platform that issued the token. You can transfer your token using the wallet. And again, a virtual notary, powered by a smart contract, will make sure you do it according to the rules. Moreover, all the wallets activity is constantly recorded and being updated.

Is all this free? Nope. Somebody needs to pay for the notary, vending machine technician and coke delivery. In the token world – the operation process is called “gas.” So, each time you ask to buy or sell tokens, there will be some “gas” spent and you will pay its fee.

Created on 22nd Jul 2021

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