Utility Token Definition
A utility token is a type of digital token that is issued to fund the development of the cryptocurrency and can be later used to purchase a good or service offered by the issuer of the cryptocurrency. It is essentially a digital coupon for the company’s service that is blockchain-based.
Utility Token Key Points
- Utility tokens are not designed as investments.
- They are digital assets that can be used within the issuing company’s ecosystem.
- They give holders a right to use a network or leverage it to develop their own apps.
- They are often sold in initial coin offerings (ICOs).
What is a Utility Token?
A utility token is a type of cryptocurrency that 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 utility tokens them from federal laws governing securities.
By creating utility tokens, a startup can sell “digital coupons” for the service it is developing, much as electronics retailers accept pre-orders for video games that might not be released for several months.
Why are Utility Tokens Important?
Utility tokens are important because they enable companies to raise funds for the development of their projects. They also provide incentives for potential users or investors to purchase tokens, as they can gain access to a product or service at a later date with the tokens.
Who Uses Utility Tokens?
Utility tokens are used by a wide range of people. They are used by investors who wish to support a project, by users who want to access a future product or service, and by the companies themselves as a form of fundraising.
When are Utility Tokens Used?
Utility tokens are typically used during a company’s initial coin offering (ICO). This is a type of crowdfunding, where companies sell their new cryptocurrency tokens in exchange for Bitcoin or Ether.
Where are Utility Tokens Used?
Utility tokens are used within the specific blockchain ecosystem for which they were created. They are not meant to be used as currency outside of this ecosystem, but rather give the holder a right to use a network or leverage it to develop their own apps.
How Do Utility Tokens Work?
Utility tokens work by providing a user with access to a product or service. Once a project is completed, the utility token can be exchanged for these goods or services. The value of each token is likely to be tied to the company’s success, and they can be traded on various cryptocurrency exchanges.
