Utility token definition is a digital asset that is used to finance the network by providing its buyers with a guarantee of being able to consume some of the network’s products. Utility tokens vs security tokens and shares don’t provide the rights of ownership over a part of a company.
Utility tokens should not be confused with coins (Bitcoin, Monero, Litecoin and so on) as they are not mineable and are based on third-party blockchain. However, similarly to coins, utility tokens are valued only for its inherent functions and properties.
Utility token implementations
Utility tokens are often used for Initial Coin Offerings (ICO). While performing a utility token ICO company issues a certain number of tokens that are sold to the community (mostly in several rounds for different prices). The owners of the token are granted a specific right in the usage of the company’s products like being first to access it or getting other privileges. This approach helps a company to gain funding without losing its independence.
Sometimes, these tokens are not used for ICOs. If the blockchain-based company’s team decides to gather funding in some other way, security tokens can be used only for powering up the network, acting like its native currency or some other purposes.
Most of utility tokens are based on the Ethereum blockchain. However, it is possible to build unique utility token with a lot of various blockchain platforms. Most of the platforms that provide decentralized applications development like NEO, Counterparty or Hedera Hashgraph are also providing the service of the establishment of in-app utility tokens.
Important fact is that the distinction between utility and security tokens is not a legal distinction, but only a technical one. Legal framework of the countries that already established cryptocurrency regulations does not take this distinction into consideration when deciding on the token’s nature. Most of legal definitions of “investment” are applied to every type of cryptocurrency tokens.
Utility token examples
Some examples of Utility tokens are:
Currently, most of tokens are utility tokens, meaning they have a value due to the function or property they represent. For example, Basic Attention Token (BAT), Ethereum ERC-20 standard-based token is used for the interactions with the Brave internet browser. BAT tokens are used for advertising blockage, specific changing type of viewed ads or to earn tokens for viewing it.
Timicoin token (TMC) is used to access the network of the project in order to gain medical information stored in it. It helps in the processing of the requested data and transferring it between p2p servers.
Sirin Labs Token (SRN) is a type of utility token that is used to gain initial funding for the company. It is mainly used to be the first line to buy the company’s products, like the Finney smartphone. However, SRN can be also used to perform quick transfer of funds within the network without any fees.
It is possible that the most bright example of a utility token is the Golem token (GNT). The Golem network’s participants are using the token to provide their personal computer’s power for the shared remote supercomputer-like network of the project. Difficult computing task, rendering and so on are performed via p2p network and provided for the users of GNT utility token.
- Bitcoinwiki: Token
- Medium.com - Joel Camacho: Utility Tokens: A General Understanding
- Katalise.io - Security Tokens vs. Utility Tokens — How different are they?
- Hackernoon.com - Rajat Gahlot: How is Security Token Different From Utility Token ?
- Golem.Network: Use Cases
- Brickblock official website