ICP tokens

Internet Computer Protocol (ICP) tokens are one of the two native utility tokens of the Internet Computer (the other one being Cycles). It plays a multipronged role within the IC. ICP token holders can participate in the governance of the Internet Computer, ICP tokens are used to remunerate node providers, and (indirectly) are used to pay for the resources used by the smart contracts running on the IC. The value of the ICP tokens is determined on the open market.

ICP tokens and Governance

To participate in the governance of the Internet Computer one must lock ICP tokens in a stake. On the IC these are called neurons, and allow participation in the algorithmic governance system implemented on the IC by the Network Nervous System (NNS). Specifically, neuron owners can submit and vote on proposals that guide the evolution of the IC. At regular intervals, (currently, every 24h), the neurons that have voted the proposals settled in the previous period earn rewards proportional to the voting power of the neuron. Further details on how to stake ICP tokens and how neurons participate in governance can be found here and here.

ICP tokens and Canister smart contracts

ICP tokens can be converted to cycles. Cycles are the second native utility token of the IC and their primary purpose is to power the smart contract ecosystem built on top of the IC. In particular, cycles are used to pay for creating canister smart contracts and for the resources that canisters use (storage, CPU, and bandwidth).

Conversion of ICP to Cycles is a built-in functionality of the NNS: the NNS burns ICP tokens and mint Cycles. The conversion process pegs the cost of Cycles to the value of Special drawing rights (SDR), a basket of currencies [1]. In a bit more detail, the IC ingests information regarding the latest ICP to SDR conversion rate and then sets the ICP to Cycles conversion rate so that 1 trillion cycles costs 0.8 SDR. In the conversion process, the ICP tokens are effectively burnt and the corresponding Cycles are minted.

ICP tokens and node providers

ICP tokens are used to pay the node providers -- these are the entities that own the computing nodes that make up the IC. At regular intervals (currently monthly), the NNS decides on the number of tokens which each node provider needs to receive, mints the corresponding tokens, and sends them to the specified account.

How to get ICP tokens

There are a few different ways you might acquire ICP tokens. For example, you might: Purchase ICP tokens directly through an exchange that lists ICP tokens available for trade. A reasonably complete list can be found here [2] Receive tokens as rewards for participating in the governance of the Internet Computer Receive a grant of tokens through the Internet Computer Association (ICA) or the DFINITY Foundation. Receive tokens as remuneration for providing computing capacity as a node provider.

How to control and manage ICP tokens

On the IC, the information about the ICP tokens is maintained in the Ledger canister, a component of the Network Nervous System. The Ledger canister maintains a mapping between account identifiers and (ICP) token amounts. It allows the principal that controls an account to transfer ICP tokens to any other account. All transfers are recorded as transactions in a ledger of transactions. The ledger also records minting and burning of ICP tokens.

Control over a user’s ICP accounts and over the neurons is done via a cryptographic key. The key identifies the owner of the key to the IC and is required for authorizing essentially all of the operations that involve the user’s accounts or neurons. Needless to say, the key should be securely generated (e.g. should have sufficient entropy), should be securely stored and should be backed up. Depending on the value of the ICP tokens (or neurons) a key controls, one has to select a trade-off point between security of the key and the level of friction required to utilize the key. Some choices are outlined below.

The most convenient way to control ICPs is to utilize a custody provider. Major exchanges already provide custody services for tokens and custody services for neurons are under development. If one does not want to rely on third parties, there is a range of options on managing ICP token accounts and neurons which users can employ. Some options require a higher degree of sophistication than others. For high security, one should use a hardware wallet (e.g. a Ledger device) or an air gapped machine together with self-custody software (e.g. quill). If security is not paramount (e.g. the value of tokens controlled is small) one can use software wallets. For example, one can use the nns-dapp: a software wallet that is provided by the IC. The nns-dapp conveniently bundles the ability to control and manage both ICP accounts and neurons with keys managed through the use of the Internet Identity. Alternatively, the nns-dapp allows to “attach” a ledger device, that is to use cryptographic keys managed via the ledger device, thereby obtaining the security guaranteed by the ledger device with the convenience provided by the nns-dapp.

Links: price chart, list of exchanges, cycle, staking, ledger, neuron, address, wallet, custody, NNS Dapp