What is Utility Token?

A utility token is a digital asset that can be used to purchase goods or services on a blockchain platform. In many cases, utility tokens used to purchase goods or services on a blockchain platform or access certain features such as using a decentralized application (dApp).

In the physical world, Alibaba can launch a utility token that enables users to purchase goods and services on the platform. Alternatively, utility tokens can be released by a project during a crowdfunding event, via an ICO or IDO, to raise money and actualize their vision/mission statement.

In this arrangement, the minted utility token enables investors to access their platform and transact, using the utility token as a means of payment within the platform. ICO/IDO tokens are not mean to generate profit but to increase the value of the project, create a network effect, and trigger mass interest in any of their product or value proposition.

Utility tokens are often compared to commodity tokens, which are digital assets that can be traded on exchanges and used to purchase goods or services outside the protocol. However, unlike commodity tokens, they are not typically used as a form of investment. Instead, they are meant to be used for their intended purpose.

What are the Difference between Utility and Security Tokens?

As mentioned earlier, utility tokens are often used to access a specific feature or service on a blockchain platform.

For example, the Augur platform uses its own token, REP, to allow users to trade predictions on the outcome of events. The Filecoin network uses its own token, FIL, to incentivize users to provide storage space on the network.

On the other hand, security tokens are those that represent an investment in a company or asset. They are often issued by companies during a Security Token offering (STO) and can be traded on secondary markets. Security tokens are subject to federal securities regulations under the SEC in the United States. An example of a security token is NEXO.

Both utility and security tokens have their own benefits and drawbacks. Utility tokens are often more volatile than security tokens since they are not backed by a physical asset or regulated by government agencies. Meanwhile, security tokens are often more stable since they are backed by a real asset and regulated by government agencies.

Are Utility Tokens Valuable?

One can’t tell how valuable a utility token is until it is listed on a liquid and public crypto exchange. The value of the crypto utility token can only be determined after such a utility token is availed to the masses where later its value is determined through market forces.

Often, the value of a utility token narrows down to the value proposition of the network, how it is received by the community, the quality of the team, the uniqueness of the product, and whether the token is compliant with existing laws.

In recent years, Bitcoin has evolved to be the world’s most valuable because it was the first crypto asset to demonstrate the blockchain technology. Ethereum is also finding success and is widely supported being the first smart contracting platform.