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  • Writer's pictureJoy Yuan

Utility Tokens: Fostering Real–World Value Through Cryptocurrencies

Updated: Dec 3, 2022

Over the years, we have seen widespread beneficial innovations using Blockchain technology. Through novel innovations, this disruptive technology has become a vanguard in creating new, productive business models for most industries.

The invention of the crypto tokens is one of the notable factors that have immensely contributed to the success of the Blockchain stratum. These tokens have been serving a vast range of functions while maintaining the decentralized, open-source, distributed, and trustless nature of Blockchain technology.

In the Blockchain ecosystem, maximalists mostly gravitate toward convenience and the utility of these tokens. The aptly named 'Utility tokens' we will discuss in this blog is one effective crypto token that continues to serve as a tool for driving human behavior using incentives.

To effectively elicit these value-laden tokens' effectiveness, I would delve deeper into 'Utility tokens,' what they mean and how aspiring custodians can acquire them.

What Is A Utility Token?

To understand what utility tokens are, let us, first of all, take a look at tokens as a general concept.

Tokens depict fungible, non-fungible (NFTs), and tradeable cryptocurrencies representing tangible assets, utilities, or specific use cases on a Blockchain. Except for Bitcoin and Ethereum (though still technically tokens), tokens generally signify ‘asset rights’ managed through a smart contract and on an intrinsically distributed ledger.

In essence, Utility tokens are simply the type of tokens that enable future access to the products or services offered by a company (first dibs on limited edition products, discounts, or first access to brand new services). The proceeds from these digital assets are used as an escrow bond to finance a network and encourage particular behavior.

Unlike the security tokens, whose main objective is to create expectations of generating financial benefits for the holder, Utility crypto tokens, like the name connotes, aim to offer specific utilities. In other words, custodians of these crypto tokens are offered a guarantee of easy access to the products of the financial establishment in exchange for their tokens.

Let us take the Basic Attention Token(BAT), for instance. This token is a Blockchain-based digital token that tracks and pays publishers for their content and users' attention. This Utility token also provides value for advertisers in return for their ads. Like the BAT Token, there are other Utility tokens examples, including Chainlink, Binance Coin, Zilliqa, Aurora, and 0x.

How to Get Utility Tokens?

Financial establishments leverage this disruptive innovation by disbursing their unique utility tokens in Initial Coin Offerings (ICO) to generate development funds. Through these offerings, a company can create unique utility tokens and decide to sell them for a product still in its nascent stage.

Startup projects offer utility tokens to users who invest in them during such offerings before launch. Ultimately, the company manages to raise funds for its growth, while its token custodians get great future post-launch benefits.

To circumvent the impression of engaging in a security offering, businesses that offer these utility tokens are increasingly avoiding the term "ICO" in favor of terms such as "Token Generation Events" and "Token Distribution Events." So, the next time you invest in some Utility tokens, ensure you are convinced it's a genuine project and try to look up the relevant terms instead of merely ICOs.

To amplify your erudition on the practical nature of these tokens, I would emphasize further the use cases and privileges utility tokens can accord us.

Other Roles of Utility Tokens

  • The token owner has various privileges, such as the ability to use or own a product.

  • Utility tokens enfranchise the holders, especially when it comes to crucial decisions.

  • Utility coins allow you to store data in a decentralized manner. These tokens serve as a medium of exchange for the services they deliver.

  • In the Blockchain, utility tokens serve as money. In subsequent years, it may also be used as a substitute for fiat currency.

  • Users can gain more access to the blockchain infrastructure or a decentralized service.

  • Finally, Utility tokens help to develop a thriving economy within the system. Civic token is an example of a financial institution incentivizing its users to double-check and make attestations within their Blockchain ecosystem.

The Takeaways

In recent times, many incumbent businesses that do not develop their blockchain strategy are at high risk of watching their business models become uncompetitive, especially as futuristic innovations continue to emerge.

In the future, we will see more traditional processes embrace Blockchain or most startups developing equity from venture capitalists through adopting successful utility tokens.

Finally, as a blockchain enthusiast, I reckon it's only a question before utility tokens go mainstream. What do you think? Are they poised to become the future of financial institutions?

Follow my Twitter @JoyyuanWeb3 to learn about the trends of Blockchain, Crypto, and Web3!

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