The Fundamental Principles of Utility Tokens in the Blockchain Ecosystem


Tokenization is an aspect of blockchain technology that is enabling the effective transfer of value throughout the internet. The fluidity and liquidity created by this concept helps to connect products and services while defying the constraints of location and always breaking the barriers of compatibility.

A class of token that is increasing in popularity and are proving to be very essential within the blockchain ecosystem are 'Utility Tokens'. These types of tokens primarily exist as accessibility elements on the blockchains that they represent. A more intriguing concept about these tokens is the versatility that they provide by minding present concepts, creating new ecosystems that enable the participants therein.

The CEO of Never Stop Marketing, Jeremy Epstein describes to CCN that Utility tokens confer a right on the holder to participate in the network in some way. Such tokens can give holders a right to utilize the network and take advantage of its services to vote on the governance of the community and its upgrade. For example, a decentralized Uber token may give you the right to take a ride whereas an ARK token gives you the right to vote on the direction of the protocol via its delegated proof-of-stake model (DPos).

Apparently, the purpose of any particular utility token is determined by the solution offered by its parent blockchain. While Uber tokens give right to rides and ARK tokens enable voting eligibility as mentioned above, events planning and management blockchain startup KickCity offers utility tokens that will enable events platforms to plug into the blockchain protocol. Imaging events platforms such as Eventbrite, Ticketmaster and on the blockchain using a reward system that permits effective marketing. Such systems will allow event tickets to be sold beyond localized regions with a blockchain automated reward system to participants.

According to the CEO of Sociall, Jade Mulholland, in comparisons to other major currencies such as Bitcoin and Ethereum, utility tokens serve a very important function and commonly only exist within a single ecosystem. Mulholland elaborates that while Bitcoin serves as a form of payment or a store of value, utility tokens can usually only be used inside of one platform to serve fundamental purposes like making a purchase for a good or service.

Our token will be used as the native currency within the platform for purchases rather than traditional currency (AUD, EUR, etc) or other cryptocurrencies such as Bitcoin or Ethereum. SCL will not be used outside Sociall. It will only exist within our stage"

, '' he says.

With blockchain technology there's a whole lot of versatility, and that is one of the key reasons why it finds adaptability in virtually every aspect of human existence. No matter the specific intention of a given token, be it for safety, equity or utility purposes, it always plays a substantial role in establishing the platform that it serves. Therefore in general, tokens can be appreciated as the lifeblood that sustains the parent blockchains.

Galia Benartzi, Co-founder of Bancor explains how FINMA's current remark paper identified three types of tokens — advantage, payment and utility tokens- while acknowledging the presence of hybrid models. According to Benartzi, at their core, utility tokens offer access to a specific application or service (that could be decentralized) or the right to contribute work inside a community-owned network. Utility tokens could be staked, or locked under certain terms, in order to gain privileges in an ecosystem, which creates powerful incentives for users to act.

He describes these tokens as the lifeblood of today's emerging online economies, inspiring and mobilizing participants (such as for-profit entities) to collectively provide an integrated set of solutions, while sharing the same database, user base and money.

«Since online economies utilize their own special utility tokens, economic growth means that participating businesses will see the value of the Assets increase as the network develops, allowing them to scale their operations, and gains, also. This collective incentive and benefit structure is the essence of a functioning distributed model and the major driver of its own network effect», says Benartzi.

Beyond the principal purposes of the tokens, they all have the inherent capability to serve as investment vehicles and components of transport of value. This capability relies on the basic economics of demand and supply. Hence platforms that are popular and attract more users obviously find their tokens rising in value within the marketplace. This is the basic idea behind trading and speculation within the cryptocurrency market and the volatility that exists therein.