Three types of tokens at the ICO

Investors are paying more and more attention to high technology and the cryptocurrency market. In turn, every new project, which is commonly referred to as a startup, needs money to develop. To attract investment, as a rule, startups do not use traditional methods, but resort to ICO (Initial coin offering), which is analogous to IPO in the stock market.

Companies conducting ICOs offer tokens to investors. Not all tokens taste the same :), so it's time to understand their classification. Startups in the cryptocurrency market offer three main types of tokens.

The first type of tokens - shares

As you know, Etherium network makes it possible to use smart contracts. With their help, young startups issue tokens, which are analogous to shares on the stock market.

In turn, the investor who acquires the tokens gets a stake in the company that issued them and can participate in its further development by voting. The list of investor shareholders, all processes and voting results are maintained in blockchain.

Despite the attractiveness for investors, this type of token is currently being issued quite rarely. The reason for this is the lack of a legislative framework for cryptocurrencies.

Simply put, if a token holder, by analogy with a share holder, makes a profit, then the law on securities comes into effect, but for the cryptocurrency market, as we have already noted, there is no such law yet. That is, the use of equity tokens requires a solid legal foundation.

The second type of tokens - useful tokens

Since all tokens can be bought and sold on a cryptocurrency exchange, making a profit, they essentially fall into the category of securities and are an investment opportunity. However, most companies avoid the analogy with securities by issuing utility type tokens or utility tokens.

The number of utility tokens issued by the project is limited. This is done either by limiting the issuance or by pre-mining the tokens before they are publicly placed. This leads to the fact that the growing popularity and success of the project leads to an increase in the price of its tokens.

As we have already noted, to avoid legal problems, many startups clearly label their tokens as useful. However, some companies, in an effort to raise as much money as possible, sell their tokens as investment vehicles. And while utility tokens are not yet in the realm of financial regulators, a token - analogous to a security - will be seen as just that.

The third type of token - cryptocurrency

The third type of token is a cryptocurrency, it can be used as a means of payment within the system itself. Such coins can not only be bought, but also obtained independently in mining process. In fact, this is bitcoin and all altcoins.

However, there is a significant difference between cryptocurrency and this type of token.

The direct purpose of cryptocurrency is to be a means of payment, to transfer the value of goods, replacing fiat money.

In turn, most cryptocurrency tokens are hosted on other blockchains, like Waves or Ethereum, and their functionality is extended, allowing them to be used not only as money.

These three types of tokens are the classics. In fact, there are many more varieties, and the differences between them are quite blurred - almost all types of tokens can be used as money, as an investment tool, and as payment for work.

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