Tokens are not purely digital currencies, they have evolved into instruments with different functionalities.
Basically, tokens may be split into the following groups:
In the case of currency tokens, an entrepreneur would like to issue a new cryptocurrency with unique features, and the purpose of the ICO is to get financing to pay its employees, for promotion etc. When developed, this token starts trading on the stock exchange and turns into a full-fledged cryptocurrency. Experienced investors can easily compare these tokens with other cryptocurrencies and decide if they are worth investing into. You may lose your investment if the currency turns out inconvenient or faulty.
Utility tokens, sometimes referred to as app coins or user tokens, provide investors with access to the company's platform, product, or service. Startups issue utility tokens to raise capital to fund the development of their blockchain project, and investors can buy future access to a service or a product, sometimes at a discount compared to the finished product’s price.
The advantage of utility tokens is that they do not fall under any regulatory restrictions in countries where ICOs are permitted, at the same time, such tokens do not bring profit, they just represent investors’ rights to use a product or service.
An equity token provides you with ownership and control. The Ethereum based DAO was the first major equity token. Owners of DAO tokens could participate in the decision-making process of the organization. Investors will benefit from purchasing such tokens if the project is successful, then the token’s value will go up.
An asset token represents a physical asset or product. Asset tokens have considerable growth potential, because they enable genuine P2P ecosystems on the blockchain.
Tokenized gold is an excellent example of an asset token. For instance, Goldmint project offers investors to purchase tokenized physical holdings of gold, which is very convenient, as physical gold is difficult to store.
Credit tokens are similar to loans: an investor provides the founder with financing during ICO for a certain period of time and gets interest in return. The advantage of credit tokens is that they offer high yield: interest may total up to 100% per year, but such tokens bear high risks as well, as the startup founder, who will be in charge of this money, may fail to keep promises.
This token is given for special achievements, for example, for participation in the activities related to the platform. Some of these tokens may not be tradeable, and their value is most often purely symbolic. Steem Power on the blockchain-powered social media network Steemit is an example of such a token.
If you want to build a long-term investment portfolio instead of a purely speculative one, ask yourself several questions before purchasing a token. What does this token represent? How likely is its value to rise or fall? Can this product exist without tokens?
Good luck with your investment!