Utility tokens are poised to transform the way companies issue stocks. While they should not be confused with digital coins, they share similarities with the blockchain-based cryptocurrencies as they are valued for their functions and features. Experts on what is blockchain put utility tokens under the microscope to help industry newbies and veterans understand how they work.
What are utility tokens?
Utility tokens are services or units of services that can be purchased, but they are engineered to be spent only within a specific blockchain ecosystem.
Take Dentacoin, for example. Dentacoin is a utility token designed for the dental industry. It can be used for transactions, but only in the involved dental communities, which include the UK, the Netherlands, Canada, Bulgaria, Germany, South Africa, and China.
Other great examples of utility tokens are Siacoin, Civic, Filecoin, Timicoin, Brickblock, Golem, Basic Attention Token, and Sirin Labs Token.
At the moment, the ERC20 Ethereum standard is the most popular utility token in the market, thanks in part to the increasing popularity of smart contracts. Many companies also relied on it when they developed tokens for their decentralised applications and Initial Coin Offerings (ICOs).
How do utility tokens work?
According to blockchain technology experts, utility tokens are typically used for ICOS. They allow companies to raise funds without compromising their independence. Here is how it works:
Companies sell a certain number of tokens to the public or their community. Most put up the tokens in the market several times with different prices. Those that bought utility tokens will get special rights to the company’s goods or services. For instance, they may enjoy first dibs on limited edition products, benefit from discounts, or get first access to brand new services.
Fundraising is the reason behind utility token’s ICO boom in 2017, but that is not their sole purpose. They also:
- Grant holders with voting power when it comes to crucial decisions – This is prominent among blockchains with a proof of stake model. Once users have a stake in their network, they will have the chance to vote on its well-being.
- Develop a thriving economy within the system – Consider the company Civic, which pays its users to double-check identities and make attestations within their blockchain system.
- Represent a financial asset – According to experts on what is blockchain, utility coins can also be used to signify another financial asset, such as tangible money and properties.
- Enable the trade of digital goods – Consider blockchain-powered games and their ability to offer their players genuine ownership over their purchased online assets.
Make the Most of the Benefits of Utility Tokens
As a revolutionary digital asset management solution, it is only a matter of time before utility tokens go mainstream, so integrate them into your ventures today.
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