What Good Is A Utility Token?!?!
I keep hearing the question ... "Why make utility tokens?"
The idea is that we should just use bitcoins or ethers, you know, one of the arrived cryptocurrencies and not some new token. Some people feel a little or a lot of anxiety over the idea of an endless marketplace of tokens and wish we'd just stick to one thing. Others even go so far as to call everything other than Bitcoin a scam...
Today I'd like to help you understand why utility tokens are here, they're queer, and you're just going to have to get use to it. You will see a future of many tokens, I am certain of it, and it will only be a good thing.
Before I answer THE QUESTION I’d like you to think about whether these two questions below make sense to you:
“Why don’t coffee shops use US dollars rather than making their own stamp card for customers?”
“Why don’t movie theaters just use US dollars rather than making their own ticket system?”
Many anti-utility token folk are thinking in the way of traditional economics with ETH/BTC replacing USD or another fiat currency and due to this they think the tokens are competition for ETH/BTC/USD or that they are a form of inflation.
But that is not the real reason people create tokens, it is not, in fact, to become a money. Tokens are more suited to be something along the lines of a coupon, ticket or stamp card like what you might have in your wallet to get a free coffee eventually. So, your question is sort of the same thing as asking why coffee shops don’t just use US dollars rather than creating their own little stamp card.
So here is a quick exercise to answer this very important question. Ask yourself why movie theaters like to have their own ticket system, why coffee shops like to make stamp cards systems and why airlines create air miles points. I think that you will find that the reason for creating a token is the same reason for these legacy systems, only way more bad ass.
But last and most certainly not least. Why is ETH valuable or worthy of being a currency? Simple, because of the tokens that can be made on it. I don’t much care for BTC, because it secures only bitcoins. However, ETH secures any tokenized asset you can imagine and I believe that fact will cause it to lead in the future.
If you think about a fiat currency and why people value it, its due to the fact that fiat currencies are backed by security, or at the very least taxes and threat of violence. This might sound odd to you at first, but let it sink in. In a society governments protect people from violence and theft of property. When they issue a currency that currency has value to people because the government requires you to pay them in order to provide you with security. Is it kind of like gangsters coming to your shop to offer you "protection" for a regular fee? Yep, pretty much, but that's the cold hard world we live in.
Ethereum is exactly the same, but, you know, without the extortion. Your ETH has a value because the Ethereum blockchain provides security as a service. But that security is only valuable if it secures something you need protected. This means that ETH has value only because people store assets on Ethereum, which usually are represented by some kind of token. Without tokens on Ethereum needing security, the ETH currency itself is really without value.
So, we see that utility tokens give Ethereum its value and Ethereum gives the utility tokens their value. Its a beautifully symbiotic relationship that results in a solid decentralized finance ecosystem.