Explanation of Utility Token
admin,April 11, 2018
Cryptocurrency has gained much attention around the world since starting in 2017, and the increasing price of bitcoin, up to $20,000, has made people consider Bitcoin and other cryptocurrencies as a new form of investment or trading product. And if you, like many, choose to delve into Cryptocurrency, the following terms, ICO and tokens will become familiar to you.
ICO (Initial Coin Offering), according to investopedia.com, is used by start-ups to bypass the rigorous and regulated capital raising process required by venture capitalists or banks. The concept is almost similar with IPO where the company shares the stock to gather funds for their company’s growth. In ICO, there is no stock, only tokens. The start-up or company issue crypto tokens on a blockchain, mostly based on an Ethereum platform, and then sell them to investors or contributors.
There are two common types of token in ICO – Equity token and Utility token. Every token has a different functionality, value, and rights, however both of them are tradeable.
In this article we will address the Utility token only.
Definition of Utility Token
Utility tokens represent the future access to the product or service of the company who is offering it in ICO. When investors buy utility tokens, they buy the ‘rights’ of the product or service (not the product or service itself) once it’s launched. The funds from the selling of the tokens will then be used to develop the project. You are essentially betting on the future viability of that product or service, and by extension the company.
Rights of product
The ‘rights’ of the product or service whose utility tokens you own can be varied and different among each other.
For example, with the utility token “GCP” from @Globcoin; tokens bought during their ICO, grants you the rights to Direct trading on the Globcoin Exchange and Exchanging Fiat money for GLX and GLX to Fiat money, as many times as you wish.
While for Basic Attention Token (BAT), the tokens are used as a medium exchange between users, advertisers, and publishers who participate in the Brave browser ecosystem.
Although utility tokens are not designed as investments, many hope that the value of the tokens will increase as demand of the product or service increases. For example when the Ethereum smart contracts platform, which has Ethers as it’s coin tokens, was first announced in 2014, it’s ICO raised $18 million in Bitcoins (or $0.40 per Ether). When the project went live in 2015 and again in 2016, the Ether value went up as high as $14 with a market capitalization of over $1 billion.
So, are you interested in owning utility tokens?