Tokenization in cryptocurrency is one concept that managed to garner significant interest in its short history. Being the best form of fundraising for crypto companies in general and with its growing popularity as a form of transfer of value, the crypto space has seen more and more projects popping up each day.
A token could be seen as the symbol of contract whose value is independent of the dynamism of the market but determined by an eminent entity. Tokens are generally used to transfer value. Statistics show that there are over 1000 digital tokens out there.
Given the growth of crypto tokens in recent times, it is hardly surprising that the cryptocurrency sphere is under intense scrutiny from financial regulators to would-be institutional investors. It would seem that the question on everyone’s mind is whether each token has an underlying utility.
According to a report by Bloomberg, the results of the analysis of 226 ICOs and token sales, only about 10% of such tokens demonstrated some sort of utility. Utility, as it appears, is mostly not taken into consideration by many companies issuing tokens and the bottom line is when the market stabilizes, tokens without utility might find no place in the community.
The major point is that with the different types of tokens popping up, as an investor or a buyer, it is crucial to understand where your funds are committed.
What are Utility Tokens?
Utility tokens are simply representations of access to a company’s product or service in the future or upon enactment of project. On grounds of federal regulations on securities, one distinct feature that exempts them from securities law is their structural construction. Appropriately structured utility tokens are not considered as investments.
With utility tokens, startups and companies give their partners and investors slots for the services provided on their network. Another feature of the utility token is that the total supply is usually fixed and as a result, there is every possibility that it could appreciate over time as demands increase.
Why You Should Consider Utility Tokens?
Co-founder of Bancor, Galia Benartzi, pointed out that utility tokens give access to an application, service as well as a position to work in a community-owned project. An example is the idea put forward by Al powered decentralised platform, Aworker, developed for recruitment opportunities.
With utility tokens on the network, people get rights to become recruiters or recommend acquaintances for jobs they deem fit. Galia Benartzi emphasized that utilities are more like vehicles of investments and are quintessential to the development of emerging digital economies.
“Since online economies utilize their own unique utility tokens. Economic growth means that participating businesses will see the value of their tokens increase as the network grows, enabling them to scale their operations and profits as well.”
Hence, utility tokens are more like vehicles of participation in technological growth. Given the number of technological projects especially Blockchain rising up across the crypto space, utility token are just the key to participation and benefits.
However, with digital projects come the risks of scam schemes, therefore it is important to look at the feasibility of the project offered critically. Hence, the utility part of tokens is one feature that should be critically investigated.
Ifeanyi Egede is an experienced and versatile blockchain technology and cryptocurrency content writer and researcher with tons of published works both online and in the print media. He has helped several startup companies grow their businesses in the blockchain and cryptocurrency space. Ifeanyi has close to a decade of writing experience, and when he is not writing, he spends time with his lovely wife, Tega and adorable daughter, Chimamanda.