Crypto assets used to pay for a good or service on a particular network are utility tokens. Typical examples of these tokens include Ethereum, Vechain, Augur, EOS, TRON, Cardano, Tezos, and Stellar.

 

Within utility tokens, there are also Initial Coin Offerings (ICOs), which are initial coin offerings. These are similar to initial stock offerings in the stock industry.

 

Crypto assets are also tasked with raising funds to subsidize blockchain development costs.

 

What are Utility Tokens?

A utility token is a crypto asset that is used as a means of payment for goods or services by blockchain technology. They are usually created on blockchain networks and are native to the platform they are used on.

 

One thing to keep in mind, these tokens are crypto assets, so they are not considered financial instruments in Indonesia. This means that utility tokens are not subject to the same regulations as securities.

 

Typically, utility tokens are launched during ICOs, IDOs, and IEOS, when investors can purchase crypto or fiat assets.

 

These tokens are also used as extra money for users to participate and power the network.

 

For example, some platforms require users to own a certain amount of tokens as a condition of participating or accessing a feature.

 

Utility tokens are also limited to ecosystems designed around them but not used as investment vehicles.

 

For example, a company may have its utility token that is useful for paying for rides on that company’s network.

 

These tokens are also overseen by the SEC. Typically, the SEC uses the “Howey Test” to determine the token type it classifies as.

 

Main Functions of Utility Tokens

 

 

Utility tokens have several benefits for blockchain networks and their users. They also play an important role in building a sustainable and competitive crypto ecosystem.

 

The benefits and functions provided by utility tokens can help drive growth and innovation in the industry. Here are the main functions of utility tokens, namely:

 

Can make users actively involved in a platform

Using utility tokens can engage and motivate users within a platform or ecosystem. Users also benefit from activities such as obtaining rewards for exclusive access or other benefits. It can also build a strong and growing community.

 

Can increase efficiency and transparency in transactions

Utility tokens can increase efficiency and transparency in transactions and business processes. They also allow direct transfer of value between parties without the involvement of a third party, thereby processing and reducing transaction costs.

 

Can build and develop communities

Utility tokens also connect users who share a common interest. Not only that, these tokens also facilitate interaction between users in the ecosystem. With this exchange of information and experience, users can build a community that supports each other and grows together.

 

Making it easier for users to use digital assets

Using utility tokens can also make it easier for users to use digital assets. This is because utility tokens can integrate with other platforms and applications in the blockchain ecosystem.

 

Advantages and Disadvantages of Utility Tokens

 

• Advantages of Utility Tokens

In addition to being a useful token for its users, there are other benefits to using these utility tokens, such as:

 

• Utility tokens can be used with Bitcoin or cash, such as rewarding an activity.
• Users new to utility tokens can get cheaper rates for accessing a platform or service.
• Utility tokens can become more valuable the more the network is used.
• Utility tokens allow users to vote on future improvement proposals in the dApp.
• Utility tokens can also be used to purchase items in blockchain-based games.

 

• Disadvantages of Utility Tokens

While there are many advantages and benefits for users, utility tokens also have some drawbacks, namely:

 

• Utility tokens have a fluctuating value as their value is based on supply and demand.
• The easy process of issuing utility tokens has led to some quality assurance issues, such as many scams that produce a lot of tokens, and the payment is received, but the product is never delivered.

 

Examples of Famous Utility Tokens

 

 

• 0x (ZRX)

0x (ZRX) is an open-source protocol that allows the peer-to-peer exchange of ETH-based tokens and assets to provide a decentralized, trustless medium of exchange for ERC-20 compatible tokens.

 

• Augur (REP)

Augur is a decentralized predictive market platform that allows users to make predictions and bet on the outcome of real-world events. The token can also be used as a reward for market makers.

 

• Golem (GNT)

Golem is a decentralized supercomputer that allows users to rent out computer power to people in need. The token can also be used to pay for services and resources on the platform.

 

• Basic Attention Token (BAT)

Basic Attention Token (BAT) is a token that monetizes user attention on the Ethereum-based Brave browser. Users also use BAT tokens as rewards for viewing ads in the Brave browser.

 

Comparison with Securities Tokens

Although they work the same way, utility and security tokens differ. Usually, security tokens are used in the crowdfunding process of new crypto asset projects.

 

Security tokens are also regulated under certain unions, such as the US Security and Exchange Commission (SEC). Not only that, security tokens can also represent shares in a project and various benefits such as profit sharing, dividends, interest, or capital gains.

 

Conclusion

Utility tokens are one of the core players in the blockchain ecosystem. These tokens are defined as crypto assets used by blockchain technology as a means of payment for goods or services.

 

These tokens can be used to build communities, increase efficiency and transparency, and make using digital assets easier.

 

When investing in cryptocurrencies, such as buying and selling bitcoin or other crypto assets, investors must understand the difference between utility and security tokens.

 

While utility tokens are used as a means of payment for goods or services within the blockchain ecosystem, security tokens are characterized more similarly to conventional securities, often offering ownership rights or profit sharing.

 

It’s important to understand this difference because the outcomes that will be created are different. Not only that, but the rules, risks, and rewards are also different.