What Are Utility Tokens – Blockchain FAQs Answered

In a world where Blockchain technology and cryptocurrencies continue to inspire innovation; utility tokens are becoming worthwhile investment options.

But for someone new in this space, the big question remains – what are utility tokens and how they differ from other types of tokens?

Read on to learn more.

What Are Utility Tokens?

Utility tokens are digital assets that you receive after investing in a new blockchain application or a project. These tokens allow their users to purchase items or services present on the token issuer’s website.

How Are Utility Tokens Different From Security Tokens?

The main difference between utility tokens and security tokens is their purpose and intended use:

  • Utility tokens, allow users to use their newly-acquired coins to make purchases within the token issuer’s platform. Therefore, utility tokens are not necessarily a long-term investment, but rather a token for everyday usage.For example, a new startup can create utility tokens and sell digital coupons for the services or products it is developing. They can also offer significant discounts to individuals that wish to use their native token as a form of payment.
  • Security tokens, on the other hand, represent investments. Token holders receive dividends in the form of tokens whenever the company issuing the tokens earns a profit in the market.The token holders are also shareholders of the company. Thanks to blockchain technology, these users are able to vote and have relative control over the company’s decision-making process.

How Can I Invest in Utility Tokens?

While utility tokens are a relatively new model in the Blockchain industry, investing in them is pretty simple.

After the tokens are issued, a portion is awarded to the creators in a pre-mining offering (usually locked by smart contracts). Another portion is sold to users/investors through a crowd-sale process.

The process is very similar to Initial Coin Offerings (ICOs). Purchasing utility tokens is crowdfunding a tokenized development/project. 

When you invest in utility tokens, you gain exclusive access to the digital project’s platform. You can compare an investment in utility tokens to funding the development of shared infrastructure through an Initial Public Offering (IPO).

After you buy tokens using your preferred form of payment, you become an investor in a project or user of an application under development.