Roles of the ICP utility token

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ICP is the Internet Computer's utility token, and is used in four primary ways:

1. Paying for smart contract computation and data storage

The first purpose of ICP is to provide a source of cycles, the digital fuel that powers canister smart contracts when they perform computations and store data. Any chosen quantity of ICP can be converted into cycles (the conversion is one way). The real-world cost of cycles is stable because ICP worth 1 SDR is always converted into exactly 1 trillion cycles. This means the Internet Computer can keep the cost of computation stable. An SDR is a virtual currency created by a basket of five major currencies (USD, EUR, RMB, YEN, GBP) in quantities defined by the IMF (International Monetary Fund). 1 SDR is worth around $1.30 USD. Once a canister smart contract has been charged with cycles, it can use them to perform computations, store data and serve interactive web experiences. This causes the cycles it has been charged with to be progressively burned, until the contract must be recharged with new cycles (or refilled/"topped off").

2. Governance of the Internet Computer

The second purpose of ICP is to enable participation in network governance. The Internet Computer network runs under the direct control of the Network Nervous System (NNS), which is a special permissionless DAO (decentralized autonomous organization) that is integrated into its protocols. ICP can be staked inside the NNS to create voting neurons. The voting power of a neuron is proportional to the quantity of the ICP locked inside, as well as how long it will take to unlock the ICP. The owner of the neuron can vote on governance proposals manually, or configure the neuron to vote automatically by following other neurons (in a scheme of algorithmic liquid democracy). When a neuron votes, its "maturity" increases, and this maturity can later be applied in different ways to mint new ICP.

3. Remuneration of node providers

The third purpose of ICP is to remunerate the independent node providers who are running the special node machines that host the Internet Computer network. The NNS rewards each node provider for each node machine that is operating correctly, at a fixed monthly rate in cash terms. The exact rate depends on the location and type of node involved. Each month, the NNS mints new ICP and disburses it to node providers in quantities that ensure the node providers receive token payments with the appropriate cash value. This helps them remain profitable and stable, since the real world costs of operating node machines are relatively fixed (hardware depreciation, data center rack, bandwidth, etc).

4. A store of value

The fourth purpose of ICP is to provide a store of value. The ICP token must act as a store of value so that the preceding three purposes can be achieved. Moreover, ICP can also be exchanged for other tokens. For example, when a new web3 service spins out in decentralized form, it may offer its governance tokens in exchange for ICP. This results in the ICP raised being stored in the DAO that controls the service (i.e. being held under the control of its community) and the original owner of the ICP receiving governance tokens.

See Also