Cryptocurrencies have value and can be bought or sold, but this is not where things end. There are many categories a crypto can fall into, one of those categories is utility tokens.
So what is a cryptographic utility token and what is its purpose?
What is a cryptographic utility token?
A cryptographic utility token goes beyond a store of value. This type of token is commonly issued in an initial coin offering (ICO), when a company or project is in its infancy and is looking for financial support. For a startup to raise capital, investors must be offered an incentive if they are not going to be given a stake in the company.
This is the core purpose of utility tokens. If a company is successful, the utility tokens it initially issued will gain value and can be spent within its network or ecosystem. In a sense, you could think of utility tokens as a marketing tactic.
Utility token holders can also access special treatment and benefits in exchange for their purchase, such as early access to the project, additional features, better staking returns, etc.
It is important to remember that utility and security tokens are not the same thing. While utility tokens act as an incentive, security tokens offer investors a real stake in a company. Basically, they are proof that an investor owns part of the company in question.
Furthermore, utility tokens do not represent a real investment, while security tokens do because there is no guaranteed return or ownership involved in purchasing utility tokens. They are more like access codes or vouchers than anything else. And in both cases, investments can fall as easily as they can rise, so always do your due diligence and never invest more than you can afford to lose.
There is also a notable difference between utility and governance tokens. While governance tokens have utility as voting tokens within an ecosystem, they are not strictly classified as utility tokens because they are not issued during an initial coin offering and do not provide any exclusive benefits or discounts. Governance tokens are used solely to vote on the decisions and direction of a network.
Examples of utility tokens
Utility tokens are not uncommon in the crypto industry, but a select few have gained a fair amount of traction in the market.
Binance Coin (BNB)
Binance Coin is the native currency of the Binance ecosystem, which consists of two blockchains: the BNB beacon chain and the BNB smart chain. Binance Coin can be used on both blockchains as a form of payment, be it for transaction fees, gaming, governance, or even charitable donations.
BNB was created and issued in 2017 during the Binance Initial Coin Offering. At the time, 20,000 BNB was worth the same as 1 BTC or 2,000 ETH. Since then, the price of Binance Coin has increased and 1 BNB is now worth more than $300. So in this case, those who bought the utility tokens at their initial launch would have made a nice profit (as long as they held onto their BNB until the price went up in 2021).
Basic Attention Token (BAT)
The basic attention token is a ERC-20 file Developed on the Ethereum blockchain. BAT is used to track usage time and browsing habits on the brave navigator. BAT’s initial coin offering took place in 2017 and was made available to advertisers and publishers to analyze and improve the way they engage with Brave users.
Advertisers within the Brave ecosystem can also use BAT as a form of payment to pay for various services. Users can also be rewarded in the form of BAT for viewing ads, so it is beneficial for both sides. Users can then buy and sell their BAT like any other cryptocurrency on a decentralized exchange.
Alternatively, BAT holders can give their favorite content creators some backgrounds within the Brave browser. BAT’s price aside, its uses within the Brave ecosystem are numerous, serving and benefiting customers and business owners alike.
The Zilliqa Network it is fast becoming the best option for creating decentralized projects, staking coins and tokens, minting or buying NFTs, and much more. Zilliqa’s use of block chain snippet (or split) makes it particularly attractive, allowing it to scale more efficiently.
Zilliqa’s native coin, ZIL, was launched in 2017 during the company’s initial coin offering, and its issuance raised over $20 million in funding. Like BAT, ZIL has a very low price compared to other utility tokens, but it has a fairly large trading volume and market capitalization, which accounts for its prevalence within the crypto market and the number of projects created with its use. block chain.
Remember the governance tokens we talked about earlier in the article? Zilliqa also has a governance token, known as gZIL, which exists separately from the ZIL utility token. Those who own long-term gZIL can have a say in Zilliqa’s future through the network’s voting system.
Are utility tokens risky?
There is no doubt that utility tokens can become incredibly popular and accumulate huge amounts of value, but are they reliable?
One thing to remember about utility tokens is that they are not as strictly regulated as security tokens, exposing buyers to the risk of financial loss. If the company that issued the utility tokens fails or does not perform as well as expected, this could cause a financial loss for those who decided to buy a piece during the initial coin offering.
Because utility tokens are not highly regulated, the door is open to scammers who want to make a quick buck by selling people an idea or concept that will never come to fruition. If a person thought a project had potential and bought some of the utility tokens issued by said project, he risks losing everything he has spent if the project turns out to be some kind of rug pull scam. During the cryptocurrency ICO boomNew projects appeared daily, with hundreds of scams.
It’s also worth noting that most utility tokens are ERC-20 tokens, meaning they were created and exist on the Ethereum blockchain. The biggest drawback of Ethereum is its gas fees, which can be quite high. This could certainly be considered a frustrating factor when selling utility tokens, as a portion of your profits will be subtracted to pay for these gas fees. exist ways to lower your gas ratesbut none are guaranteed to work all the time.
Lastly, utility token holders have no say in what happens to the company. Utility tokens do not represent ownership, so while the people who buy them may benefit financially if the company is successful, they will never have any decision-making power. Security tokens can offer this, but never utility tokens.
Utility tokens have their uses, but they can be a risky purchase
There is no denying that security tokens have proven useful and successful. Many crypto startups have benefited from the issuance of utility tokens, and buyers always have the opportunity to make a healthy profit in such cases. But utility tokens have their pitfalls and uncertainties, so it pays to keep an eye on exactly what you’re buying if you’re interested in this type of cryptocurrency.
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