Utility tokens are types of tokens that represent a value within blockchain services. Their primary role is to incentivize their usage.

It is very common to use "cryptocurrency" and "token" interchangeably. This is because language is on a continuum between technically correct and real-world usage. Technically speaking, all cryptocurrencies are tokens.

A token can be anything that represents some kind of value. For example, a physical coupon represents the value of a discount when purchasing a certain product. Bitcoin is a token that represents deflationary value, which is why it is often called digital gold. The precious yellow metal is rare in the Earth's crust, which makes it valuable.

Similarly, Bitcoin is valuable because it is limited to 21 million tokens. Its value is further amplified by being digital and convenient to use without relying on a centralized organization. Because of its large market capitalization, which at one point reached €845 billion, Bitcoin adopted the moniker cryptocurrency.

The same happened to Ethereum (ETH), leaving behind thousands of tokens that could equally be exchanged for fiat money. This gap between market caps of top crypto tokens made it so that it was more convenient to call other crypto coins as simply tokens or altcoins.

When it comes to utility tokens, they represent the value of - you guessed it - utility. They are usually hosted on existing blockchains instead of having their own, like Bitcoin. Ethereum is the largest hosting platform for utility tokens. While they hold monetary value and can be exchanged for fiat currency, it depends on the popularity of the service they are embedded within.

For example, Filecoin (FIL) utility token is running on the InterPlanetary File System (IPFS) network. This particular blockchain is focused on decentralizing data storage, where FIL token is used for all tasks related to storage - paying for retrieving and storing files. This way, such a utility token incentivizes both sides of the equation - those that provide storage and those willing to pay for it.

In the same vein, Livepeer Token (LPT) is in charge of incentivizing decentralized live-streaming, based on Ethereum. Likewise, Basic Attention Token (BAT) is a utility token that doesn't have its own blockchain. It runs on Ethereum to be used as ad monetization. Internet browser Brave integrated BAT tokens to pay for advertising campaigns, as well as earning BATs when viewing ads.

utility-token.png Price performance of three utility tokens - LPT, FIL, and BAT - indicates which decentralized service is more in demand, source: TradingView.com

In other words, if there is a utility that can be tokenized, utility tokens will be there. More importantly, if such a utility becomes more popular, the value of utility tokens will rise.