What is Utility Token?

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A utility token is a digital asset with a specific functionality on a blockchain — this is distinct from coins or security tokens which are typically used only for price speculation. Utility tokens are often used to make decisions or buy goods and services. ETH can be viewed as a utility token because, while many buy it simply as an investment, it is needed to perform functions on many different decentralized applications on the Ethereum blockchain.

Another example is Binance’s BNB token which is used to trade on Binance at a discounted rate compared to Bitcoin or other cryptocurrencies. There is often debate over whether a token is a utility token (performing a function) or a security token (representing an investment in a venture), as the latter are regulated by the SEC and dealing in unlicensed securities is illegal.

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