What are Utility Tokens, and why do we need them?

by | Sep 28, 2020 | Token | 0 comments

According to the Merriam-Wester dictionary, a utility token is “a digital token of cryptocurrency that is issued to fund the development of the cryptocurrency, and which can be later used to purchase goods and services offered by the issuer of the cryptocurrency.”

In a layman language, a utility token is a blockchain-based digital asset people purchase intending to use for something in the future. For instance, the Tokenizer Issuance Platform is on the verge of issuing TKZ tokens to fund the development of its tokenization infrastructure. After the issuance of the tokens, the company will gain access to capital to fund its project, and the buyers/investors will gain access to TKZ tokens for future use.

But, utility tokens are not confined to just buying items in a digital set-up. They are a versatile and robust medium with a broad range of applications, some of which are discussed in this article.

What is the difference between a security token and a utility token?

Before we differentiate between security and utility tokens, we need to define what a token is. A token is simply a means of exchanging value. Although all tokens have value, the intended use of the token defines whether it is a security or utility token.

A security token is bought as an investment. Buyers invest their money, expecting a profit. For the value of a security token to appreciate, the investor depends on a third-party. For instance, for a security token representing a property, a property developer would be expected to increase the investment value on behalf of the token holders.

Unlike security tokens, utility tokens are not purchased with the intention of return on investment. Instead, they are bought to be used to exchange value. Due to this, there are several applications of utility tokens.

Uses of utility tokens

A utility token’s usage and value are based on three pillars: its role, features, and purpose. There are six significant roles that utility tokens play, and based on these roles, each token has different features and purposes. The six roles are:

Bestowing a right to the owner of the token, such as the right to own or use a product, or the right to vote.

Exchanging value for services provided, like decentralized storage.

Rewarding users for joining or using decentralized networks.

Acting as a means of enhancing customer experience by rewarding users with tokens for completing specific tasks.

Functioning as a currency for payments within or outside a particular blockchain, as an alternative to traditional fiat money.

Earnings of certain things can be distributed and shared using utility tokens.

These six roles cover several applications in which utility tokens can be used.

Tokenizer Blockchain Banking Platform

The Tokenizer is a blockchain investment banking system that champions accessible, transparent, and safe financial services. We believe that everyone deserves equal access to investment and fundraising opportunities. That is why we are democratizing access to capital for investors and fundraisers by making investing and fundraising efficient, safe, and accessible to everyone.

Are you in need of raising funds or investing in security tokens? Apply to raise funds through Tokenizer by filling this application form. If you want to invest in security tokens, sign up for a Tokenizer Investment Account today, and if you want to liquidate and trade-in Asset-Backed Tokens, we have a decentralized exchange designed for you! You can also contact us to order a metallic crypto card at $149 only.

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