We recently published an article about ICOs where we explain what an Initial Coin Offering is and what types of tokens there are in this financing model. If you have not yet had the opportunity to read this article, give it a try by clicking here, so that you do not miss any details on the subject.
But if you’re already familiar with the term, you know that there are basically two types of tokens for those who want to invest in crypto coins in an ICO: the Utility Token and the Security Token.
Although the two tokens may be part of the same project, their differences are striking- and investors need to be aware of them in order not to make the wrong choices. While the Security Token is a kind of debenture for trading and investments, the Utility Token is not necessarily a key that will be valued as an investment. It enables the investor to use the functions of the system in which he is investing and therefore, the owner will not profit directly from it.
In other words, the Utility Token is perfect for anyone who wants to use the cryptocurrency system while it is being built, while the Security Token can be traded in the crypto-coins market after the project is completed.
In addition, an interesting phenomenon occurs between the two tokens within the “stock market” of the alternative currencies. While a Security Token can be valued through external factors with market variations, a service or product within the blockchain that uses an Utility Token and becomes popular can increase the value of both keys.
Why should you invest in Utility Token?
On chat groups when we mention Utility Tokens, blockchain and crypto coins, it is clear a lot of people still do not understand the subject very well – but they will! It’s just a matter of time and research 😉 – they might not understand what the great advantage of the Utility Token is, since it does not yield income with the creation of a new currency made through an ICO.
Is it worth using “only” the system features?
The answer is yes. And the reason is quite simple, even though the process of developing a utility token is quite complex …
What we haven’t told you yet, even in the ICO article nor in the one you are reading now, is that the Utility Token, which in Brazil is also called (token de consumo, token de usuário or moeda de aplicativo), acts like a market barometer that points out the demands for several sectors of the economy.
In a country in recession like ours, what most companies want is a market projection for the coming years in order to decide whether to go full force or pull out when it comes to taking action towards business growth and investments.
When someone purchases a Utility Token they are participating in a sort of pre-sale of a report of the demands of an industry within the blockchain. Since it is not an investment in itself, the utility token is not regulated by the CVM( Comission of Real Estate Value) and therefore does not have to go through the Howay Test which classifies a purchase as a security. This justifies the name of the second type of token which is indeed an investment.
Even if profitability is not the ultimate goal for issuing Utility Tokens, this does not mean that the company that buys them will not profit from it: by participating in an ICO, the investor may be helping finance a series of projects that will create new useful features that can assist companies in staying competitive and continuing to grow. Thus, those who purchase Utility Tokens are basically betting on the possibility of testing their demands on products or services from the development of a cloud technology.
It should also be considered that a Utility Token is a good guarantee that what is being capitalized will be available in the future. By opening tokens for utility testing, developers involved in the project can implement system improvements and assure investors that the product or service is making progress as expected.
Finally, a Utility Token is a way of buying way in advance (and therefore much cheaper) something with great potential of growing in popularity and having its value increase exponentially.
Take for instance Bitcoin, the world’s most famous virtual currency, in order to understand the benefits of this early purchase: in April 2019 it registered a price value of R$ 22,000 for 1 Bitcoin. In other words, in the beginning of the project whoever invested even a much smaller amount than this and instead purchased, let’s say 100 bitcoins and did not sell any of them, would now have no less than 2 million and 200 thousand Reais in their virtual wallet.
With the popularization of cryptocurrencies and their use in various sectors of the economy, even with no government intervention regulating its transactions, we might have countless Bitcoin millionaires spread around the world who now administer fortunes from simply betting on the right project for creating an alternative economy.
So imagine that today you bought a Utility Token for cheap for a project that in two or three years will grow exponentially. Although you won’t be able to monetize that investment right away – for that you would need to purchase Security Tokens – you would now have a precious tool for measuring the market demand for the project and access to the system features available at a much lower cost than those who would purchase them only when the project is a proven success.
Like in every market, the decision whether to buy Utility Tokens or not is a matter of market vision, it requires assessment and precision as they represent betting on purchasing tools that will assist your company to continue growing. We know conversations about blockchain, ICOs and tokens can get very heated and unpleasant for those who do not fully understand these terms. You can count on us here at BeZen blog to help you better understand how, when and why you should invest your money on initial coin offering projects – and what is the best and safest way to do so.