What is a Utility Coin/Token?
The many uses of the Internet in the interlinkages of people, places, and things, and the tidal wealth of information is so unprecedented that users cannot but filter through to make the most of what the world wide web could offer or might simply drown under heaps and heaps of data. While in the scouring mode, many inadvertently stumbled upon a nascent disruptive ecosystem called the crypto world and chose to stay.
Satoshi Nakamoto’s introduction of Bitcoin and Blockchain in 2008 after the global recession became the turning point of what has become today a major disruptive industry in successfully reconstructing obsolete financial mechanisms on a global scale. A rush of cryptocurrency creation dominated much of the years following Bitcoin through the initial coin offerings due to the underlying blockchain infrastructure which was nothing short of a miracle, decentralizing almost every business model start-up that came by.
The Utility Token
One of the most unique features of every crypto project that arose is the creation of its own utility token. Think about entering a gaming machine arcade where you need to buy tokens in order to come across a variety of game machines within the gaming arcade. The same principle applies in the ecosystem of a blockchain or crypto project.
A token can represent anything from being a unit of value, a voting right, a stake, or to avail of a product or service. It can fulfill many other roles that the project may design. It can be different from cryptocurrencies like Bitcoin which functions as a currency beyond its own ecosystem. Other coins are created on top of a platform like Ethereum’s ERC-20 and utilize smart contracts.
Utility tokens of a company are usually distributed to investors during an ICO. It is not meant to generate profit but to be used as access to the company’s up and coming products and services. Tokens can become securities if investors participate in the ICO/ISO with the intention to generate profit, upon which the company must be registered with the SEC.
The issuance of utility tokens is meant to give holders the right to access the network and help build economies within the ecosystem. Holders can also lock their tokens so that they are empowered to vote on decisions affecting the overall health of the network.
If there is a high demand for the utility token of a particular company, its value price can increase, leading people to invest in them even though it is not designed as an investment vehicle. Thus, company design economics has the power to affect investment decisions.
There are certain roles that make a utility token gain value. First, the rights that give holders to navigate the ecosystem gives it an initial value. Another important task for utility tokens is the internal trading of values between holders in the confines of the ecosystem. Holders can gain rewards by the performance of tasks tokens undertake. Utility tokens can also act as a toll to enter and use some features of the company’s ecosystem such as its supercomputer. It can also give holders rights to enrich their experience such as by adding advertisements on the platform. It can also enable transactions to be performed as the tokens have a store of value. Utility tokens can be used to distribute the benefits and profits gained by the project.
In other words, the more utilities the token performs, the more it increases in value.
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