Token Utilization (Blockchain series — Part VI)
A brief overview.
We’ve previously discussed the two classes of tokens (security and utility), but we failed to properly explain the methods of which both of these tokens can be used to benefit the holder. While both security and utility tokens have similar back-end structures, each class can be used in a very different manner.
Some blockchain technologies, such as Ethereum, have evolved into revolutionary processes where protocols can be integrated into a platform or application to increase the functionality for users. We touched on this topic in Part I of the blockchain series. Once a platform is built with the integration of blockchain technology, a digital token needs to be either created or chosen to use within the application. The purpose of blockchain is to allow feasible and transparent transactions, therefore, a token that is compatible with the integrated chain must be utilized for the platform to to function properly. Most companies choose to create their own utility token, rather than assimilate an already established utility token into their application, to (1) control the quantity and distribution of the token and (2) to ensure that the token is compatible with the technology of the platform.
Users who hold utility tokens, should not store these digital assets in a wallet after purchase and wait until prices fluctuate drastically. This is contradictory to blockchain companies’ actual intentions. Utility tokens are not meant to be investments. They are created with the aim of enhancing the user experience on a platform through increased feasibility, fairness, and legitimacy of currency transactions and transfers. Holders should use these tokens to access the amazing capabilities of the platform. Decentralized applications provide an entire new experience for users, but a user must be willingly to engage with the platform and expense his tokens. In many instances, expending tokens may even lead to the obtainment of more tokens, as with Bethereum. Additionally, when individuals use their utility tokens on a platform, more users are encouraged to engage, purchase, and expend tokens as well. Value is added to the overall application through this positive cycle, which may lead to an increase in price of the utility token.
While utility tokens are not intended to serve as investments, the contrary is true for security tokens. These tokens grant holders a percentage of company ownership. Individuals who hold security tokens should utilize all the benefits associated with the digital assets to obtain the most advantages. We compiled a list of actions that holders can take to gain the most returns on investment.
Note: Not all actions in the list are available to every security token holder. Tokens vary in benefits. An individual should investigate the benefits before purchasing a token.
- Long-term holding- Blockchain platforms, like most new technology innovations, take a significant amount of time to completely develop and generate revenues. Security token holders will experience price increases congruently with revenue, profitability, and user growth increases. Therefore, those holders who adhere to a long-term perspective will be rewarded far more greatly for their patience than those who adhere to a short-term perspective.
- Voting Rights- Some companies allow security token holders to vote on various aspects affecting the platform, whether that be a simple change in interface design or a major change, such as decisions regarding the road-map. As an owner of the company, each security token holder should enact their right to vote on topics. Directly affecting the direction of a company is a privilege that could lead to greater future profitability.
- Airdrops- While common for utility token holders as well, companies may send security token holders additional tokens for keeping their digital coins in the same wallet for a certain period of time. Any token that is linked with this benefit should be utilized to the maximum potential. Not only does this provide extra incentive for long-term holding, airdrops are essentially free money!
- Dividends- Similar to corporations who offer public common stock, many blockchain-based companies reward holders with additional tokens in the form of dividends. A dividend differs from airdrops in the way that a dividend is a mode of profit-sharing where supplementary tokens are distributed to holders based on a given percentage (normally associated with the price of the token) and the amount of tokens held, while airdrops are just an allocation of tokens to holders, neglecting company earnings. For example, a user holds 100 security tokens and the parent company promises a bi-annual, 10% dividend per security token for individuals who hold coins for 6 month periods. The holder can expect to receive 20 extra tokens per year if he holds his 100 tokens at the start and end of each 6 month period.In many instances, when revenues and profitability increase, dividends increase.
Cryptocurrency has created an abundance of new opportunities for all individuals who desire to become apart of the innovation surrounding blockchain technology. Token holders especially can submerge themselves within and directly affect the progress of blockchain-based companies. These individuals contain the power to; be the first individuals to use new platforms, make important decisions, and obtain considerable monetary gain from ingenious processes developed by others.
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