WHAT IS UTILITY TOKEN?

What are Tokens?

A crypto token is a representation of interest in an asset or used to facilitate transactions on a blockchain. Crypto tokens and cryptocurrencies share many similarities because they are also tradeable and exchangeable, but cryptocurrencies are intended to be used as a medium of exchange, a means of payment, and a measure and store of value. Crypto tokens are often used as a way to raise funds for projects in initial coin offerings.

WHAT ARE UTILITY TOKEN?

A utility token does not function as an investment; instead, it enhances company processes. It serves as a type of token to access a specific product or service within a blockchain-based ecosystem. Unlike security tokens, which represent ownership in a company or asset, utility tokens do not provide any ownership or investment stake in a project.

Some examples of utility tokens are;

Ethereum’s gas token pays for transaction fees on the Ethereum network.

“Binance coin: used for paying trading fees on the Binance cryptocurrency exchange.”

ICOs or token sales generate utility tokens, which investors purchase using Bitcoin or Ethereum. Users can acquire them with other digital currencies. These assets serve purposes like paying fees, accessing premium services, and participating in governance.

In the crypto world, people often compare utility tokens to security tokens. The difference between utility tokens and security tokens, however, lies in their functions and legal status.

Utility tokens allow access to specific services or products within a decentralized network (blockchains), so they do not qualify as securities and do not imply ownership or investment in a company or asset.As a result, they are subject to less regulatory scrutiny than security tokens.

On the other hand, security tokens represent ownership in a company or asset, similar to traditional securities. They are subject to regulations such as securities laws and must comply with registration and disclosure requirements. Security tokens can provide investors with the potential for capital gains, dividends, or other forms of income.