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November 29, 2022
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What are utility tokens? –

Utility tokens known in Poland as utility tokens are a common type of asset on the cryptocurrency market. In this article, we’ll learn what utility tokens are, take a look at their properties, and find out what they can be used for.

What are utility tokens?

Before defining what are utility tokens, the first thing to consider is what are tokens anyway? In the simplest way, we can define tokens as the medium of exchange that gives the transaction value. Whether a given token is functional depends on its purpose, however.

Dictionary Merriam Webster defines utility tokens as cryptocurrency exchange funds, issued for the purpose of developing a cryptocurrency that can later be used to purchase goods and services offered by the issuer. To put it simply, utility tokens are a tool supporting the financing of startups. This term is inextricably linked with the ICO.

In theory, utility tokens are purchased for later use as intended. Nevertheless, practice most often shows that investors count on high returns on investment in this asset.

Various utility tokens

The vast majority of projects that can be found in the Coinmarketcap registry are utility tokens. Examples of such tokens are most often all those created on the basis of the Ethereum blockchain. A very large number of projects issue their tokens based on the ERC-21 standard, and then switch to native blockchain solutions during the development of their own platforms. BAT is a good example of projects using utility tokens. The Basic Attention Token is at the heart of the community creator support system and is also an essential mechanism for the Brave Browser.

A special variant of utility tokens may be tokens issued by exchanges. While exchange tokens have their own qualification, they are, nevertheless, the most common tokens that offer certain services within trading platforms. Such a token is, for example, Binance Coin and GeCoin (exchanges Geco.one). These tokens are used as part of commercial functionalities – commission reduction, etc.

Performance properties

Let’s summarize what functions utility tokens have. This will largely distinguish them from strictly payment cryptocurrencies – such as Bitcoin.

Utility tokens primarily give the holder the right to use the product or service of a specific platform. The token is also a means of exchanging value for the services offered – so it is a decentralized store of value. It is a tool of gratification for individual utility activities performed within the system (quality control, improvement proposals, participation in ambassador programs). First of all, utility-type tokens are the currency that functions within a given system.

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