What is a Utility Token?
A utility token is a type of cryptocurrency that serves a specific function within a blockchain ecosystem, enabling users to access a product or service. Unlike security tokens, which represent ownership in an asset, utility tokens are primarily designed for use within a network. These tokens are often used to power decentralized applications (DApps) and can facilitate transactions or functions related to a platform.
Utility tokens are typically issued through a process called an Initial Coin Offering (ICO), where investors purchase tokens in exchange for funds used to develop the project. They are commonly used to pay for transaction fees, access services, or unlock certain features within a platform. The value of a utility token is often tied to the demand for its underlying services or products, making it an integral part of a project’s economy.
Examples of utility tokens include Ethereum's Ether (ETH), which is used to pay for transaction fees and computational services on the Ethereum network, and Binance Coin (BNB), which offers discounts on trading fees on the Binance exchange.
Overall, utility tokens play a crucial role in driving user engagement and fostering the growth of various blockchain applications by enabling access and incentivizing participation within their respective ecosystems.