Initial Coin Offering (ICO) is a crowdfunding model for start-ups that allows to attract investment and avoid strict regulations at the same time. In order to do that companies sell and distribute blockchain tokens – special digital assets of at least three different types:
1. Utility Token
Utility tokens are sometimes also called app-coins or app-tokens since they have value as a part of the business-model of the project. Utility tokens are usually less strictly regulated by the governmental bodies.
2. Asset-backed Token
These tokens, also known as Security Tokens are claims on an underlying asset that might be gold, oil, real estate, US dollars or any other form of goods or services.
3. Equity Token
Tokens of this kind are not really different from regular corporate equities gained through IPO: Start-ups that choose equity tokens issue shares and voting right over blockchain.
Tokenization is a process of transforming, accounting and managing such assets as gold, real estate, oil and others through blockchain. During this process asset rights are converted into digital tokens. The purpose of tokenization is to make working with real-world assets even easier and safer than by using traditional papers and it is achieved by means of creating a data register containing the list of transactions, transfers and owners. Trading tokens is also faster since there is no need to transpose assets and more convenient because token infrastructure allows to cut middlemen and to use additional platform modules.
Ravi Menon, MAS managing director, stated that it is the "strongest" use cases for cryptocurrencies.
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