Utility Token
Utility Token Key Points
- Utility tokens give users access to a product or service.
- They are not designed as investments.
- Utility tokens can be likened to digital coupons.
- They are often used in initial coin offerings (ICOs).
- Regulation of utility tokens varies greatly from country to country.
Utility Token Definition
A utility token is a type of digital asset that is issued by a company in order to fund development of its blockchain project. The token gives the holder the right to use the network and take advantage of its services by spending these tokens.
What is a Utility Token?
A utility token, also known as an app coin or user token, represents future access to a company’s product or service. The defining characteristic of utility tokens is that they are not designed as investments; if properly structured, this feature exempts them from federal laws governing securities.
By creating utility tokens, a startup can sell “digital coupons” for the service it is developing, much like electronics retailers accept pre-orders for video games that might not be released for several months.
Who uses Utility Tokens?
Utility tokens are used by blockchain startups, investors, and consumers. The startups use utility tokens to raise funds for their blockchain projects without the need for traditional venture capital funding.
Investors and consumers purchase these tokens during the startup’s initial coin offering (ICO) with the expectation that the tokens will increase in value, or that they will be able to use the tokens to access the startup’s service or product in the future.
When are Utility Tokens used?
Utility tokens are typically used at the launch of a new blockchain project, during an event known as an Initial Coin Offering (ICO). The tokens are sold to investors, who can either use them to access the service or sell them on at a later date.
Where are Utility Tokens used?
Utility tokens are predominantly used within the blockchain and cryptocurrency ecosystem. They are widely used in decentralized applications (DApps), blockchain platforms, and ICOs.
Why are Utility Tokens important?
Utility tokens are important because they allow blockchain startups to raise funds for their projects without having to give away equity or seek traditional venture capital. Furthermore, they provide a means of interacting with a blockchain-based platform or service.
How are Utility Tokens created and used?
Utility tokens are created by blockchain startups during the ICO process. They are typically created on a standard blockchain platform such as Ethereum, and then sold to investors in exchange for established cryptocurrencies such as Bitcoin or Ether.
Once the tokens are in circulation, they can be used to purchase the services or products offered by the startup, or they can be traded on various cryptocurrency exchanges.