What are Utility Tokens?

Blockchain technology is proving its potential in disrupting industries, making it possible to introduce a wide array of new business models. A token is a common term in the world of cryptography and blockchain which has aided their success. It is a means of exchange that adds value to a transaction and represents non-cash assets such as voting rights or ownership stake. This article aims to shed light on utility tokens.

What is a utility token?

Utility tokens are tokens that most crypto companies use during an initial coin offering (ICO). A utility token provides access to a specific service or product using blockchain technology. Some operations on the network of an altcoin may need a utility token.

The holders of many utility tokens receive special services or preferential treatment, like a discount at a startup’s product launch. As an example, one of these products might be a software package or a platform for software-as-a-service (SaaS).

As per William Mougayar, utility coins have six functions, namely:

1. Exchanging: Trading value for services such as decentralised storage.
2. Bestowing: By the virtue of ownership, an individual can have the right to own or use a product.
3. Functioning: Providing users with rewards for certain actions, thereby improving user experience.
4. Tolling: Users may need to pay a fee for using the blockchain infrastructure or using other services.
5. Earnings: Utility tokens can find their use in distributing and sharing earnings of certain things.
6. Currency: As an alternative to traditional financial payment methods inside or outside of the blockchain.

Example of utility tokens

Some of the popular utility tokens include:

Basic Attention Token (BAT): Brendan Eich, the co-founder of Firefox and Mozilla, is one of the founders behind Basic Attention Token (BAT). The project aims at improving the security and efficiency of digital advertising. BAT achieves so by rewarding users for their attention and compensating advertisers with good returns for their ad spending.

Chainlink (LINK): Chainlink is a platform powered on Ethereum that operates a decentralized oracle network. Using this network, smart contracts on Ethereum can securely access external data sources, APIs, and payment services. Professionals like node operators, researchers, data providers, smart contract developers drive the Chainlink network.  

Binance Coin (BNB): Binance Coin is the native token that aids in paying the transaction fees on the Binance crypto exchange. This exchange-based token is an integral part of powering all the sub-projects of Binance such as Trust wallet, Binance Smart Chain, Binance Chain, and research projects.

Ziliqa (ZIL): Ziliqa is a token based on the concept of sharding. It aims at improving the scalability of cryptocurrencies such as Ethereum. Its high throughput focuses on high speed, decentralisation, and security. The Ziliqa ICO was a proof of its demand and how it can add to the blockchain technology.

Takeaways

Blockchain technology has been successful in large part thanks to the use of tokens. Utility tokens can be used for many purposes and have different uses. They can facilitate seamless transactions over a blockchain, allow payments for decentralized services, and fund project development, among other things.

The core takeaway about these tokens is that they allow the owners to perform some actions with their specific tokens. These actions, are defined as per creator regulations are criterias, or simply according to user preferences.

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