Utility Token Definition
A utility token is a type of digital asset that is issued by a project or company, typically on blockchain, to fund its development. It provides users with future access to the product or service offered by the project. Unlike security tokens, they do not treated as investments per se, but are purchased with the expectation of future access to a company’s product or service.
Utility Token Key Points
- Utility tokens are typically issued during an Initial Coin Offering (ICO).
- They provide holders with access to a specific product or service.
- These are not designed to be investments, although they can appreciate in value.
- Regulation around utility tokens is developing in many jurisdictions.
What is a Utility Token?
A utility token is a type of cryptographic token that represents access to the issuing company’s product or service. These tokens are often sold in fundraising events like ICOs, with the proceeds used to build and develop the underlying platform or service. They function as a kind of “digital coupon” for the future use of a product or service.
How does a Utility Token work?
When a company decides to raise funds by issuing utility tokens in an ICO, investors pour money into the project in exchange for these tokens. Notably, the ICO participants are not buying shares in the project, nor are they receiving an automatic return on their investment. Instead, they get tokens that they can use to access the platform once it is fully functional.
Who uses Utility Tokens?
Both developers and users take advantage of utility tokens. Developers use them to raise funds and create user base for their projects, while users acquire tokens to access the platform’s services. It’s also important to note that despite not being investments in the traditional sense, some people buy utility tokens hoping that they will increase in value over time as the platform becomes popular.
When would one use a Utility Token?
One would use a utility token when they want to use the product or service that it represents. Furthermore, if someone believes in the potential of the platform and plans to be a regular user, they might buy utility tokens in the platform’s ICO.
Why are Utility Tokens important?
Utility tokens are an innovative fundraising tool for companies, especially for those in the crypto and blockchain industry. They also help generate a community of users even before the product or service is fully launched. Moreover, for users, they provide early and cheaper access to a platform’s features.
Where can you buy Utility Tokens?
Utility tokens are often available for purchase during a project’s ICO directly from the issuing company. After the ICO, they can typically be purchased on various cryptocurrency exchanges. However, the availability of specific utility tokens will depend on the exchanges and the regulation in different countries.
