Choosing the right crypto utility coin to invest in
by Tom Nyarunda
With at least 20,000 already developed and launched, the world of cryptocurrency grows faster than the best investor can keep track of. The sheer number of projects is a clear indication that crypto projects offer great opportunities for investors, but experience teaches that only some utility coin options offer benefits that are worth writing home about.
This guide discusses utility crypto tokens, what they are, their advantages, and the best ones for your crypto investment.
What is a utility coin?
A utility coin, also known as a user token, is a digital asset or token designed to perform a specific function within a particular blockchain, primarily based on Ethereum's ERC-20 standard. The main characteristic of user tokens is that they are pre-mined or all created simultaneously, unlike traditional cryptos that can be mined.
Furthermore, utility coins differ from regular cryptocurrencies as they are created to give users access to features, products, and services within the network. These may include exclusive payment methods, rewards, discounts, and voting rights. The best utility coin may not be considered a security since users don't have ownership rights for the project.
How utility coins work
In most cases, a utility coin will be limited to a specific blockchain, meaning its utility is based on the particular blockchain network it was created for.
The following are among the prominent uses of utility tokens:
Access to services
Holding a utility coin grants the user access to the specific functionalities of the mother blockchain project. This may include storage or retrieval of data from a decentralized cloud storage, without which the service wouldn’t be accessible.
Utility cryptos can be used as a tool for value transfer, a means of exchange and interaction between blockchains that are interoperable with other networks. A perfect example is that of the Chainlink blockchain users, who are expected to hold LINK to enable them to interact with supported blockchains.
Rewards and discounts
This use case is particularly famous with centralized and decentralized cryptocurrency exchanges, which issue utility coins that give holders access to limited discounts like lower trading fees or other exclusive benefits on their platforms. The privileges are only available to token holders.
Governance and voting
Members of cryptocurrency platforms can use their utility tokens to contribute to the decision-making processes through voting. Holders also retain rights within the platform to vote for issues like governance proposals or changes to the protocol, among others.
Best utility coins
Ethereum (ETH) is the mother of smart contract blockchains and home to most utility coins supported by the ERC-20 token standard – all ERC-20 transactions use ETH to pay their gas fees. Ethereum hosts a vast network of decentralized applications (DApps). With its ongoing upgrades, it remains a powerful utility coin with a market cap of over $191 billion at the time of writing.
The native cryptocurrency of the Cronos blockchain, this ERC-20 token is an integral part of the Cronos ecosystem. It is used for numerous purposes, such as payments and lock trading. Moreover, it seamlessly integrates with Crypto.com's services, including its crypto exchange, App, and decentralized finance (DeFi) wallet.
Chainlink (LINK) is a decentralized network specifically created for the Web 3.0 era, aiming to bridge the gap between real-world data and blockchain. The network uses oracles that facilitate smart contract transactions to autonomously mine data from verifiable and trusted sources. Users need LINK, the project's user token, which is a leading utility coin, to execute all queries for data-driven applications.
Polygon (MATIC) was created to enhance Ethereum’s scalability and lower gas fees. The token facilitates faster and cheaper transactions by enabling Ethereum’s DApps to use Polygon’s sidechains. Holders of MATIC, the network’s native utility coin, can use it to pay gas fees and vote on network governance issues. Polygon has continually spread its wings via new partnerships, so much so that MATIC is among the leading utility tokens by total value locked (TVL) and has consistently ranked among the top 20 digital assets by market cap.
The Sandbox (SAND)
The Sandbox (SAND), a leading Metaverse project, allows holders to buy parcels of virtual land via tokenized non-fungible tokens (NFTs). Anyone making transactions involving virtual real estate must pay using SAND, the project's native currency, meaning the token is in high demand. The popularity of the SAND token is likely to continue soaring as the Metaverse and virtual real estate concepts continue to advance.
Should you invest in a utility coin?
Utility tokens are viewed as a good option for anyone who wants to get involved in a long-term investment. Nonetheless, you want to conduct your research to be able to locate a good utility token based on its features and other essential factors.
If you're going to invest in user tokens, consider the utility and demand of the coin, as these will influence performance. Furthermore, tokens designed to solve tangible user problems have a higher demand and are better investment vehicles than those with less popular use cases.
Additionally, check the development and adoption of the parent blockchain ecosystem as they determine the token's long-term potential.
Utility coins created by well-developed platforms backed by competent teams are better off than investing in one struggling to survive. Cryptocurrencies are generally in their formative stages, and the future potential of any blockchain determines the investment potential of their tokens. Blockchain platforms showing a potential to grow will offer utility tokens that are good investment options.
Utility tokens are an excellent investment opportunity since the majority have the potential for solid long-term profitability. The best utility coin to buy should be one that's associated with a functional ecosystem and the potential for great adoption.
Look for a user token with the potential for sustainable long-term profitability.
Finally, your personal investment goals will also determine your choice of the 'best' utility coin besides its value proposition.
Tom is a freelance writer with over 15-years’ experience in content creation, blog writing, and SEO specializing in the blockchain and cryptocurrency niche. He is a philosophical figurehead who believes that to make our world a better place, we must invest in incorruptible products and procedures, of which Bitcoin and other cryptocurrencies are leading examples.