Did you know there was a subtle difference between cryptocurrency coins and tokens? Bitcoin is, as it's name suggests a coin. But what about Ethereum? It too is a coin, but what about platforms built on Ethereum? Well, they're tokens because they run on the Ethereum blockchain and do not have their own custom blockchain.
Confused? No need to be, if someone creates a new blockchain from scratch and issues units of worth that can be said to be a store of value, a medium of exchange and a unit of account, then it's probably a coin.
If on the other hand, you have something that uses an existing blockchain, then it's a token, even if it's sometimes treated like currency.
Which should you invest in?
The answer to that is "Either or neither". Not a very satisfactory answer but truthful nevertheless. The problem is that there are so many coins and tokens being offered, how do you sort the wheat from the chaff? There's no easy answer to that. It's down to research, your research, your judgement. And that, is at the heart of the blockchain cryptocurrency movement.
Being responsible, taking power back into your own hands and making your life, vote and money count. Cryptocurrencies like bitcoin and Ether are decentralized. There is no central governing body to manipulate a currency like fiat currencies where governments and banks create more money through debt.
When they do, it devalues what money you have in your pocket/bank/savings. Cryptocurrencies on the other hand are finite. They state upfront how many coins will be available and for how long new coins will come into being. As an example there will only ever be 21 million bitcoins - ever. Depending on hashing power, it grows constantly, the last bitcoin will come into being somewhere around 2140.
Unless ALL miners, or at least the majority decide to create more, that will be the total of bitcoin, 21 million. As it's decentralized, no government or bank can manipulate it.
This also means there's no central authority you can go to if you forget your password to your wallet. You are responsible for your bitcoin, no one else.
Before you invest in any ICO or token/coin you need to know what you're investing in. Is it a coin or a token? If it's a coin, why is it better as a store of value, a unit of account and a medium of exchange than say bitcoin or Ethereum? Are there competitors coming up that will blow yours out of the water?
You need to know how fast a coin can process transactions, if it's to become a replacement for money it has to be able to process transactions at least as fast as Visa and Mastercard, preferably faster.
You need to understand how the coin will be better, there needs to be a real and compelling benefit which you easily understand. Too many White Papers are highly technical and full of nominalisations which can confuse the layperson.
If you want to be sure that you understand things, explain it to someone else. Someone who doesn't know anything about the blockchain/crypto world. If they can understand then you understand or you wouldn't be able to explain it.
There are many articles around that tell you what to look for when investigating an ICO
- Is the website secure with an SSL certificate?
- Is there a White Paper?
- Is there a 'one pager' that simplifies the White Paper?
- Who is the team?
- Is there an Advisory Board and if so, who's on it?
- Is the source code open source?
There are many ways to evaluate an ICO or token/coin but in the end, you are responsible for your decisions so don't rush, no matter how much you're told you'll miss out. This is a typical approach of scam artists and it's a powerful psychological trigger, be aware of it and don't fall for it.
Tokens
Tokens may also be a medium of exchange, can also be a store of value. Their true use is to use the actual platform. There are tokens being launched for real estate, these are to enable you to invest in property when you don't have the resources to buy. As an example, you might buy tokens in an ICO that is going to buy and then rent out commercial property. They may (or may not) offer you a return on your investment.
The money raised in the ICO goes to buy property and/or further develop the application. If you're looking to invest in one of these you need to know when property will be purchased. Let's face it, if they don't have any property already, you need to be very sure that they will indeed buy property with your money.
Tokens are by far the most common ICO, even if they're called coins. These are high risk, yet if successful high reward. Before you part with your money think about whether you yourself will use the application. If you buy into a gaming platform, do you game?
Conclusion
Tokens may, in the short term be safer as you can evaluate the usefulness of the application simply by asking yourself and friends if you/they would use it. It's a vertical niche and so universal adoption is not required, just enough to make it viable.
Coins on the other hand do need universal adoption (or at least much wider adoption than a vertical niche) so you need to know how they intend to get that adoption.
Always, always remember though "Caveat Emptor" or Buyer Beware. Only invest what you can afford to lose and do plenty of research.