Definition and Characteristics of Utility Tokens
In the realm of cryptocurrency, tokens play a vital role. They are the digital assets that are
issued by a project and can be bought, sold, or traded. Among the various types of tokens,
utility tokens hold a unique position
Definition of Utility Tokens
Utility tokens, often referred to as app coins or user tokens, represent future access to a
company’s product or service. In essence, they are like digital coupons for the company’s
service, which are blockchain-based. It’s important to note that the defining characteristic of
utility tokens is that they are not created to be an investment.
If a startup decides to issue a utility token, it means they are selling a digital coupon for their
service. As the company’s service becomes more popular, these coupons may increase in
price.
Characteristics of Utility Tokens
Utility tokens have several key characteristics that distinguish them from other types of tokens:
1. Access to Services: Utility tokens provide the holder with access to a specific product or service. These tokens can be spent on the platform to access these services.
2. Limited Supply: Like other cryptocurrencies, the supply of utility tokens is often
limited. This scarcity can drive up the price of tokens as demand increases.
3. Not an Investment: As mentioned earlier, utility tokens are not designed as
investments. They are a means of accessing a specific service or product. Any price
increase is a result of increased demand for the service or product, not the token itself.
4. No Ownership Rights: Unlike security tokens, utility token holders do not have
ownership rights in the company. They cannot claim dividends or influence the
company’s decision-making process.
5. Subject to Regulation: Although utility tokens are not considered securities, they are
still subject to regulation. Companies that issue utility tokens must ensure they comply
with all relevant laws and regulations.
In the next section, we will delve deeper into security tokens, their definition, and
characteristics, and how they differ from utility tokens. Understanding these differences is
crucial for any investor in the cryptocurrency market.