When we talk about cryptocurrency and tokens, we mostly refer to equity tokens. This is only natural since the biggest cryptocurrencies in the market (like Bitcoin and Ethereum) are equity tokens, which most of the audience has heard of.
However, not all crypto tokens are a store of value. Some serve a specific purpose or give people access to certain products or services. There are instances where these tokens are gatekeeping an important service and scenarios in which they’re a more cost-effective way to access a certain feature.
These tokens are called utility coins.
Here’s why they are so important and how they could revolutionize the world of cryptocurrency as we know it.
1. Accessing a product or a service
Utility coins are one of four major types of cryptocurrency. Still, what are they exactly, and how do they work?
Have you ever paid for a traditional video game and wanted to buy an in-game item (like a sword or a bow)? To buy it, you must have a set amount of in-game currency (gold, Septims, Orens, etc.). You can’t buy it for fiat money, can you? After all, it’s not like an in-game weaponsmith accepts credit card payments, and even in pay-to-win (freemium) games, you would first have to buy a special in-game currency. This is exactly how utility coins work.
Utility coins exist to give you utility within a platform. You can use video game gold to buy a new sword, pay the innkeeper, enchant your helmet, or reset your skill points.
Utility coins act as a native currency of the platform, giving them utility and ensuring a demand. People who use the platform and need these extra features will buy utility coins.
Now, this is not just for the extra features. Sometimes access to these utility coins is gatekeeping your access to a specific product/service. In other words, sometimes you won’t even be able to use a product without paying for it with a utility coin.
2. Investing in utility coins
Utility coins are also a great investment opportunity. So, when looking at which new coins will explode soon, you might want to look deeper into their utility.
After all, a utility is a great guarantee of value. For instance, imagine an emergence of a huge manufacturing trend that requires a commodity like palladium. Would that increase or decrease the demand/value of palladium? The answer to this question is quite simple.
Following this logic, when researching a token to invest in, you should look deeper at the underlying technology or a platform on which this coin is a native currency. If you believe that platform will be popular and widely adopted, the token is bound to explode. With more users, the market will increase, and due to the concept of tokenomics, the cap will remain the same. If you adopt the coin early on, you stand to make a huge profit.
The fact that the value of the utility coin is aligned with the project’s success makes the research and analysis a lot simpler. For a layman (someone without a degree in economics), it’s easier to analyze the success rate of a project than it is to break down an asset into its smaller economic components.
3. Discounts and rewards
From our previous segments, one may assume that an on-platform utility is the only value these utility coins have. This is far from the truth. Sometimes, using this coin won’t be mandatory, but you’ll have a strong incentive.
For instance, there may be a special reward or a discount involved. You can also get some extra benefits this way. Every customer wants preferential treatment, meaning they may go out of their way to get it.
Sometimes, a special reward may be a voice in the poll or a vote regarding an essential question for the platform’s future. This way, these platforms (behind the token) are giving their users a part of ownership (well, governance, really) over the platform without having to give them the equity.
One more thing worth mentioning is the concept of token burning. Sometimes, the project employs a practice where they, from time to time, destroy a portion of tokens in their possession. This way, they increase the remaining tokens’ scarcity and value. From the psychological standpoint, this creates the FOMO phenomenon, which further popularizes the cryptocurrency and benefits the coin’s value.
4. The significance of utility coins
Many people are still skeptical about the legitimacy and reliability of cryptocurrency as a whole. They believe something that can be created “out of thin air” cannot be reliable. Sadly, they fail to apply the same principle to fiat currency.
Utility coins may be able to change their mind. Like stablecoins, utility coins are an asset that provides actual utility. It’s tied to something in the real world (a service or an older asset), which makes them appear more reliable than other crypto.
Stablecoins usually have an easier job because they can be tied to well-established economic trends like fiat money (USD, EUR, GBP), a commodity (gold, silver), or even a stronger cryptocurrency (BTC, ETH). Utility coins, on the other hand, are usually equated to something else that still has to prove its worth and usefulness.
Still, these two coin types have a clear blueprint for how their reputation and trustworthiness will grow. Once these two crypto categories make it, many people will reexamine their opinions on the crypto world.
Then again, the name says it all – utility coins provide utility. If people need these tokens’ utility, they will always return for more.
Utility tokens have the potential to help cryptocurrency transition into the mainstream even further
Since utility tokens provide a concrete value, many people who are skeptical toward equity cryptocurrencies may be more receptive to them. This will encourage them to take their first step into crypto (give it a fair chance). The stronger the cryptocurrency world will be as more people open up to this field.
FAQ:
Utility coins are special cryptocurrency types with a specific service in a certain financial ecosystem. You can use them to pay for specific services or use them within a specialized platform. This way, they have an intrinsic value, not just a financial one.
Bitcoin (and Ethereum) are a store of value (equity tokens). They are tokens that act as decentralized fiat money, while utility tokens are tied to a specific service. Comparing Bitcoin to a random utility coin would be like comparing $10 to a $10-worth ticket for a ride at the carnival.
Utility tokens are a bridge between a traditional service and a digital asset. No, you can’t just make a utility coin out of thin air – there must be an underlying service it controls. Otherwise, it would be like selling a ticket for a carnival ride that doesn’t exist. By showcasing their utility, people will have an easier job understanding that cryptocurrency provides real-world value.
