A token is the unit of value within a digital ecosystem and it is offered to investors in exchange for major digital currencies like Bitcoin, Ethereum, etc. The objective is to raise funds which is then used to fund development around this new token. Tokens are used both as a currency and utility token within the ecosystem. Depending on the viability of the project the token will increase in value. Initial coin offering is, therefore, a wonderful tool for raising fast funds for development, and the aim is to support a new digital ecosystem.
How does a token ecosystem work?
If you have an idea to streamline your business and to become part of the digital ecosystem, then you will need to start an ICO. You would need to raise money, that will be used to fund your development. In an ICO platform, tokens are used to operate the different activities that occur on the platform. The problem during the early stage of development is to locate investors. As a way of motivating people to buy the token the developers usually offer a lot of tokens at a very cheap price.
Initial Coin Offerings work by simply creating a document called a whitepaper that defines how the token ecosystem will work. The details are carefully documented in the whitepaper. It doesn’t stop there; they also create a website to explain why their idea is a great one and why people should be buying into it. If people are convinced about the viability of the project they can agree to invest in it by buying their currency or token.
ICO vs. IPO
Initial coin offering functions like an IPO (Initial Public Offering) in a company, and just like you purchase a share in an IPO, you can also buy a token in an ICO. In IPO-s, investors become part owners of a company through buying shares, while in an ICO, tokens are bought by investors with the hope that its value can increase when the project becomes established. Virtually all coins that are found on exchanges today are the product of an ICO.
Digital tokens analysis and operation
Digital tokens and crypto tokens are a special sort of digital currency that operates as a digital token system after an ICO. The speed at what the token is purchased indicates the viability of the ICO; however, it does not determine its credibility. For example, during the ICO of DGTX, the token was sold to investors who bought it using major currencies like Bitcoin. The aim was to raise funds that were used to fund the project. Today, the currency (DGTX) has transformed into a full-blown cryptocurrency now operating in an exchange market. Another great example is the BEST token on the Bitpanda platform that raised 43.6 Million Euros!