1. Crypto tokens vs. crypto coins
Although crypto coins and tokens fall under the broader umbrella of cryptocurrencies, subtle technical differences between the two make each unique and warrant that investors understand these variances.
While crypto tokens and coins are largely the same from the end-user perspective, there are technical differences in how they are built on a blockchain that are important to understand.
Making matters more befuddling for new investors, crypto tokens can be classified into three types: utility tokens, security tokens or equity tokens. In the subsequent sections, we will focus on the differences between utility and equity tokens, and how these dissimilarities ought to drive decision-making when it comes to investment.
2. What is a utility token?
Commonly issued during an ICO, utility tokens provide token holders with privileged services and aren’t considered to be investments as they are speculative and act more like promotional tools for the issuing company.
Usually associated with initial coin offerings (ICOs), a utility token is a special type of cryptographic asset that is primarily aimed at garnering the funds necessary to develop a cryptocurrency project. Investors may purchase these utility tokens in different cryptocurrencies or even fiat currencies, and prices are generally static during the initial stages.
These utility tokens, once purchased, are stored in a crypto wallet associated with the buyer and can be used to access services provided by the blockchain project.
Moreover, utility tokens do not represent any ownership stake in the project being invested in and instead, allow the holder to buy or sell the underlying tokens on a preferential basis.
The value of utility tokens usually fluctuates, depending on the demand for the project and may generate profits for the token acquirer if the project ends up reaching its intended purpose with reasonable success.
