28 February 2020
Utility tokens are issued during an ICO (Initial coin offering) a crowdfunding process that helps to raise capital for the new business enthusiasts in the cryptoworld to create a new coin, app, or service. When an interested investor purchases this issued token, he/she is indirectly funding a product or service in a nutshell and later on when the product is ready, the investor gets direct access to the product/service invested.
In other words, utility tokens are the digital tokens issued to fund a new crypto product or start-up and in the future, it can be used to redeem the goods or services offered by the issuer. Utility tokens can also be termed as an app or user token because they serve as a medium of exchange of goods and services against the member of a particular platform.
Utility tokens v/s crypto
Utility tokens are completely dependent on the blockchain of a particular cryptocurrency. More often tokens and crypto are considered the same, but the fact is cryptos are independent of a platform, which can be mined and used as a source of payment. On the other hand, because utility tokens are fully based on third-party blockchain and cannot be mined. The blockchain that allows creating utility tokens is referred to as a decentralized platform for applications that run as programmed without any room for contract fraud.
How Does Utility Tokens Work?
Utility token acts as a source of power on a particular platform. Its price value and demand is directly proportional to the number of people using the platform. Consider this example for more understanding Savedroid (SVD) token fuels the savedroid savings app enabling users to enjoy the services that the application offers. So as the number of new users starts using the app on a daily basis, the price value of the SVD token will rise continuously along with its demand also continues to rise.
Can utility tokens give huge returns?
Many times, people invest in utility tokens considering it as a guaranteed investment with substantial returns and the value of the token will increase as the supply for the company’s product will increase. However, this is not true utility tokens basically are digital coupons that give access to a particular company’s product or service and its price fluctuations depending on its relative demand as compared to its supply. Let’s consider this real-time example, the value of a movie ticket may increase if the movie is supposed to be blockbuster and has the potential to win an oscar. On the other hand, the value of the ticket may decrease if the movie has a no star hero of the film industry which people may want to see or have heard about his/her previous movies.
How to make Utility Token Valuable?
- Focused: A utility token should work inside a specific specialty and should be highly focused on the administrations it is issued for. For eg; Amazon sells many tokens to its users, so the users get huge discounts on the usage of the tokens rather than spending a coin.
- Exchangeability: A utility token can be easily exchanged with another cryptocurrency or sell it for fiat currency. The more fluid is the token the more it will be appreciated.
- Scarcity: Token that comes in large numbers often gets diluted appreciation whereas token in less number having finite nature gets the high value and has the potential to hold such value.
Examples of Utility token
- Siacoin: A decentralized, peer-to-peer cloud storage solution that pays people in Siacoin who rent out extra space on their computers on the Sia network.
- Dentacoin: The DCN token can as a source of payment in the global dental industry
- Ethereum: It is an ERC-20 standard-based token used for the interactions with the Brave internet browser.
- Basic Attention Token (BAT): BAT is used for advertising blockage, specific changing type of viewed ads or to earn tokens for viewing it.
- Sirin Labs Token (SRN): SRN is used to gain initial funding for the company and also used to perform the transfer of funds within the network without any additional fees.
ICO has gained the legitimacy of the best way to raise funds for start-ups in the cryptoworld. If anyone is interested in crypto investing it is very necessary to understand each and every terminology used, the working of assets and be a smart investor holding a position of a gainer even if the market becomes bullish.