Many of you have heard of digital assets, crypto assets or as I would like to call it “Tokens.” More and more people are being fond of investing in tokens. But, what is a Token in the first place? Why do people invest in it and what are the things to consider before putting your money in?
Let’s begin by introducing what a Token is. A token is a digital asset created by a smart contract. To get some tokens, you have to send some Ether, in the Ethereum platform, to the smart contract of your chosen DAPP. Tokens can be used as a currency to execute specific functions in a smart contract. It can also represent value, service or product.
There are three main types of Tokens:
1. Utility Token
- This provides access to a service or product (e.g., digital content, software, etc.)
- It acts like a native currency within the respective DAPP.
- It is closely similar to a voucher.
Analogy: When you go to an amusement park, you pay for an entrance fee. In exchange, they give you a wristband that grants you access to use the rides. In this scenario, the payment is the Ether, the wristband is the token, and the amusement park is the DAPP.
2. Security Token
- This is a digital token that is backed up by real-world, physical asset.
(e.g., house, gold, jewelry, etc.)
3. Equity Token
- This type of token is similar to stocks, it represents partial ownership of a company.
- It is sold by companies who want to raise money.
- This token identifies you as a shareholder in the DAPP. With that said, you have a say in the direction that the DAPP takes.
WHY INVEST IN TOKENS?
Many companies are opting to switch and build upon the revolutionary blockchain technology because it is trustless and it eradicates the middleman. Thus, being more cost-efficient for both the company and the consumers.
Tokens are still comparable to the traditional investments that we do. The distinct difference is that token is blockchain based. As an investor, it is very significant to exercise due diligence in managing your investments. Do your own research. Read about the company. Identify the token’s purpose and ask yourself these questions:
•What problem will this token solve?
• Why is it going to be 3x or 4x in the future?
• Why should people invest in it?
Here are some of the factors that may affect the value of a coin, token or any investment:
- SUPPLY AND DEMAND — Economics 101
Supply
- the total number of the token.
Demand
- Quality of the DAPP
- Marketed properly
- Solutions offered
If all these qualities are met. A real demand will increase, and if supply remains constant, then value appreciates.
2. TRUST
- Similar to our fiat currency, Coins and Tokens are also based on trust or faith of its users. If the community does not trust or agree on the value of the Token, then it will eventually lose its value.
- The credibility of the developers. — Since anyone can create a token, there is also a high number of scams.
- Check the developers’ profile.
- Identify who are they, what have they done before, etc.
- Read the whitepaper and the type of service offered
These factors will define how likely people will patronize a specific token.
Since you reached this part of my article, here’s a bonus tip. Just for you!
TIP: “If you don’t love it, you won’t take care of it.”
It is also more likely to choose a token that you understand and believe in. Tokens are risky investment. “But risk is always diminished if you love what the investment is, understand it and know the game” — Robert Kiyosaki
Also, discuss your ideas with people who are experts in the field and validate your thoughts why you think this token will cost more in the future.
Now, if you are looking for a sleek and convenient wallet to store all your tokens, check out HBWallet! It stores Ethers, ERC20 and ERC223 tokens.
You can access it in your mobile device and your desktop anytime, anywhere.
How awesome is that? Try it now!
It is available in : IOS, Android, MAC, Windows
That’s all folks!
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Thank you so much!
