Token is a unit of value issued by a tech or crypto start-up, intended to be a piece in the ecosystem of their technology platform or project. Tokens are supported by blockchains. They only physically exist in the form of registry entries in said blockchain. Initially, most tokens were based on the ERC20 protocol by Ethereum.
Tokens are different from bitcoins and altcoins in that they are not mined by their owners nor primarily meant to be traded (although they may be traded on exchanges if the company that issued them becomes valuable enough in the eyes of the public), but to be sold for fiat or cryptocurrency in order to fund the start-up's tech project.
Tokens can be used in a few cases:
The financial value of tokens is determined by their current market value which in turn depends on the level of user's trust to a project: usually startups entering ICOs at the initial stage are secured with nothing but a business idea and a team.
Utility tokens are such kind of tokens that allow their owner buying different services and service items. Utility tokens are used for financing of projects of common infrastructure that couldn't receive such financing previously.
Security (“investment”) tokens are such kind of tokens that give their owner the right to implement his investment interests. It may be the right to participate in a legal entity, capital, profit, the status of a creditor or a lender.
U. S. Securities and Exchange Commission (SEC) gave its official assessment on ICOs on July 25, 2017. According to the regulator, the rules that are valid for common stocks of companies when they enter an exchange should be applied to the tokens. It means that all the issuers are subject to registration to be able to issue their virtual securities.
There is the “Howey Test”  legislation created by the Supreme Court of the United States for determining whether certain transactions can be qualified as investment activity. The answer is affirmative in case it is determined that investment was made, it was the investment in a joint venture while the receipt of profit is expected mainly as a result of another person's activity.
Utility tokes that are given by a start up to its client with the purpose of financing the client's future purchases don't serve as securities (security tokens) as their primary goal is it to make the process of purchasing easier but not to gain profit. The legal status of utility and security tokens has not been determined in the Russian law system yet.
Virtual tokens as a crowdfunding tool were originally created to provide an opportunity to issue their own tokens to all the users of blockchain networks.
The first platform used for the issuance of user tokens was the Ethereum platform. It is a decentralized virtual machine which transaction is based on smart contracts using the Proof-of-work (PoW) method.
Users can also issue their tokens using cryptocurrency platforms such as Waves Platform, NEM, Nxt and EOS. All of them have their pro's and con's but, in general, they all are proven tools for the issuance of user tokens.
Since ICO tools are not yet fully regulated, people who buy tokens take most of the risks as in most cases they are only secured with an attractive business idea and potential profit.
However the issue of crypto currency assets security concerns the issuer himself. Here is the brightest example – the story of the DAO venture capital fund that was established at the beginning of 2016 and shut down before the end of the year.
The DAO was raising funds by selling its tokens as a part of its crowdfunding project. As a result it managed to raise crypto currency funds up to U. S. $152 million. After the ICO hackers stole about one third of all the assets of the fund. Although sanctions will not be applied to the owners of the fund, the precedent itself caused the decision of the U. S. Securities and Exchange Commission to consider tokens issued by the fund as securities and all transactions with them should be subject to registration.
After the decision made by the U. S. Securities and Exchange Commission many American exchanges began to limit the purchase of certain types of tokens for their users that may present certain risk in the light of new legal norms.
In this regard, experts advise non-residents of America to issue utility tokens, without involving security tokens if possible. Otherwise, trading on American exchanges, they will automatically fall within the jurisdiction of the USA, which may cause undesirable effects.
The issuance of security tokens should be associated with official registration and execution of all U. S. Regulatory requirements for safe and legal cooperation with American investors in the area of blockchain technologies.