The cryptocurrency world is one of the spheres of business that is among the hardest to grasp, even for the so-called experts in the industry. As at the time of writing this piece there are over 1500 distinct products, coins and tokens, each with its peculiar features and backing technology, and each purporting to solve one problem or the other.
Among the biggest sources of mystery for the general public is what makes a cryptocurrency the likes of Bitcoin, Litecoin and Dash and what makes a utility token, this is what we will be covering in this piece.
Difference between a Coin and a Utility Token
A typical cryptocurrency, which Bitcoin is the first among, is a decentralized digital currency that is built to specifically serve the purpose of being an alternative means of exchange for goods and services that does not require the service of a bank or any other kind of middleman. A crypto coin is a dedicated currency that serves no other purpose and which does not represent shares of any kind of entity.
A Utility Token on the other side is a digital asset that is often also misconceived as a typical cryptocurrency. A utility token serves as an access asset with which an individual can enjoy the services of a particular platform that is also built on the blockchain technology. Unlike coins, utility tokens differ widely in their purpose and usage, as the different platforms offer different services and different modes with which their tokens operate. From paying for energy bills to accessing dental care, utility tokens have a more limited scope of use as they operate mostly within a specific niche, unlike coins like Bitcoin which are universally accepted across the cryptocurrency industry, and the mainstream businesses that accept the digital assets for payment
What Makes Utility Tokens Valuable
There are a number of reasons why utility tokens gain value. Some of the more obvious ones include:
Niche of Operation: A utility token as earlier explained works within a certain niche, in order to pay for the services within such a field. Utility tokens usually gain value as a sub-currency in the cryptocurrency market depending on the size of the niche they cater for. Blockchain platforms that operate in decentralized marketplaces the likes of Amazon, for example, have a huge potential, as customers can get discounts by using their tokens to pay for services or charges instead of using the mainstay coins like Bitcoin
Exchangeability: Another important factor that determines the rise in the value of a utility ten is the ability of its holders to exchange it for another cryptocurrency or sell it off entirely for fiat currency. The more fluid a utility token, the more likely it is that its value appreciates with time.
Scarcity: This is an important principle that has a big effect on the rise in the value of any utility token. The general trend is that the scarcer a token is, the more likely it is that it will gain in value. Tokens that come in inordinate numbers often get any appreciation in their value mostly diluted, while those that are relatively scarce and are finite in their nature often gain value faster and have a greater chance of retaining such value.