As crypto grows, so does the list of complex terms to understand — like utility tokens.
In this article, we’ll answer the question: what are utility tokens? We’ll break down how they fit into blockchain systems and why they’re such a big deal for making decentralized apps run smoothly. By the end, you’ll see why these tokens matter for the growth of the crypto space.
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Utility tokens explained
What is a utility token? A utility token is a digital asset that can be used to purchase some services on a blockchain platform. In many cases, utility tokens are used to purchase goods or services on blockchain platforms or access certain features such as using DApps.
One can’t tell how valuable a utility token is until it is listed on a liquid and public crypto exchange. The value of the crypto utility token can only be determined after such a utility token is available to the masses where later its value is determined through market forces.
Often, the value of a utility token narrows down to the value proposition of the network, how it is received by the community, the quality of the team, the uniqueness of the product, and whether the token is compliant with existing laws.
In recent years, Bitcoin (BTC) has evolved to be the world’s most valuable because it was the first crypto asset to demonstrate the blockchain technology. Ethereum is also finding success and is widely supported being the first smart contracting platform.
How do utility tokens work?
In the physical world, Alibaba can launch a utility token that enables users to purchase goods and services on the platform. Alternatively, utility tokens can be released by a project during a crowdfunding event, via an ICO or IDO, to raise money and actualize their vision/mission statement.
In this arrangement, the minted utility token enables investors to access their platform and transact, using the utility token as
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Author: Nastassia Chigir
