Shawn Wilkinson is the co-founder and chief strategy officer at Storj Labs where he oversees strategy, vision and architecture for the Storj network.

The following article is an exclusive contribution to CoinDesk’s 2017 in Review.

It’s pretty clear that 2017 was the year of the token.

Whether you’re reading the news, attending a trade show or just minding your own business working in your preferred coffee shop, you don’t have to venture far to hear someone talking about another token sale. There are now more than 1,000 different digital tokens.

Keeping all this in perspective, it’s no shock to anyone that the crypto community faces ever-increasing scrutiny, with regulation in its various forms stretching from China to the U.S. The biggest common denominator in the argument around cryptocurrency is whether the tokens in question truly do have an underlying utility.

The simple fact is that many tokens don’t…

A recent article from Bloomberg reported that of 226 ICOs and token sales analyzed, only 20 of the corresponding tokens were actually used in the running of their networks, demonstrating utility of some sort – that’s less than 10 percent.

For many companies, utility appears to be an afterthought, but for a token to be successfully adopted into the community, it is the most critical component. With the amount of tokens on the market today, and new ones being launched every day, it’s clear there is a bubble, though the size of it might be debatable.

When the market slows, the tokens that have no utility will ultimately not have any value at all.

Opening the crypt

If you need further proof of the importance for utility, check out deadcoins.com, which acts as a digital mausoleum for the 600-plus cryptocurrencies and tokens that have given up the ghost.

As you look over the summaries of some of these coins, which could essentially be “cause of death,” you’ll see notes like, “trading with a market cap of $183,” “scam” and “shut down by SEC.” A good way to recap these failed ICOs is there was no functioning platform with proven utility. Tokens and platforms centered on utility will continue even if their creators move on or disappear.

Just look at BitShares and bitcoin as a few examples.

There are several benefits to creating utility with a cryptocurrency (beyond avoiding the SEC hammer). Building utility capabilities for your token inside your platform creates a healthy ecosystem. Even if you don’t have people speculating on the value of your token and your token isn’t listed on any of the big exchanges, it will be bought, sold and traded for services on your platform and amongst your community of users.

Delaying a product’s build until after a successful token sale is also a huge lost opportunity.

Post-sale, you have thousands of excited, new community members that hold your token and want to see you succeed. If you have a working platform with utility, you can easily bring those new token holders into your broader community to grow adoption where it makes sense, and create massive momentum.

I expect that in 2018, it will be rare to see companies that issue token sales without some sort of product. For token holders, that should be a major requirement when doing their due diligence.

Secret recipes

And there are some really interesting ways companies are creating utility.

Here are a few that stand out to me:

Purchasing services: The baseline qualification for most companies issuing tokens should be that the token can be used to purchase services within their platform. Purchasing services with tokens accelerates the time it takes for a transaction to settle, it makes purchasing services easier and adds an element of privacy as well. In the beginning, when the company is scaling and spending more money than they are making, the volume of tokens exchanged for the purchase of services will be minimal, but as the company’s revenues grow, so will the token transfer rate. You don’t need to require tokens to purchase services, but providing the option (and possibly providing a discount for doing so) can go a long way in driving the use of your token.

The baseline qualification for most companies issuing tokens should be that the token can be used to purchase services within their platform. Purchasing services with tokens accelerates the time it takes for a transaction to settle, it makes purchasing services easier and adds an element of privacy as well. In the beginning, when the company is scaling and spending more money than they are making, the volume of tokens exchanged for the purchase of services will be minimal, but as the company’s revenues grow, so will the token transfer rate. You don’t need to require tokens to purchase services, but providing the option (and possibly providing a discount for doing so) can go a long way in driving the use of your token. Create a self-sustaining ecosystem: If you can create a marketplace that connects buyers and sellers, facilitating transactions utilizing your token you can create a self-sustaining ecosystem that is based on transacting your token. One example is Golem, which uses its GNT token to power its decentralized computing network. Companies in need of processing power pay with GNT, which is then used to pay individuals who share their computing power when their computers are idle. This creates a vast network that lives off the utility of GNT.

If you can create a marketplace that connects buyers and sellers, facilitating transactions utilizing your token you can create a self-sustaining ecosystem that is based on transacting your token. One example is Golem, which uses its GNT token to power its decentralized computing network. Companies in need of processing power pay with GNT, which is then used to pay individuals who share their computing power when their computers are idle. This creates a vast network that lives off the utility of GNT. Automated smart contract payments: One of the areas for the biggest utility opportunity is enabling new capabilities with smart contracts. One of the benefits to smart contracts is that they enable automated payments that allow devices to autonomously participate in the network. Your smart fridge can’t swipe its credit card at Amazon S3 to store its data, but I could set that up with Storj and STORJ token.The flexibility from smart contracts also allows other ethereum platforms to integrate on the back-end. At Storj, we have many blockchain companies who are integrating with us on the back-end. When a user at another company pays for their service using our partner’s token, a portion of that cost can be converted to STORJ to pay for the storing of their data.

Room to explore

Still, smart contracts arguably have some of the most interesting utility examples, many of which have yet to be uncovered.

This is why the grand majority of token sales are for ERC-20 tokens, which leverage ethereum’s blockchain and its underlying smart contract technology. In fact, our team at Storj underwent a token sale this year that involved us migrating from a Counterparty token to an ERC-20 token. We saw the massive opportunity to leverage smart contracts and the de-facto standard for tokens within our platform.

This year has been a massive year for cryptocurrency, blockchain and smart contracts and I expect the coming year will be no less exciting. But, if 2017 was the year of the token, then 2018 will be the year of utility.

In the coming year, I expect we will see tokens that provide true utility float to the top. And in the process, there will likely be many more tokens left behind.

Bike gears image via Shutterstock