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Utility tokens are similar to pre-orders. By purchasing a utility token a consumer can then use that token to purchase the product/service offered by the organisation issuing the token. This allows the company to attain more money upfront to fund necessary activities for the development and production of the product/service.
So, why would someone buy a utility token instead of waiting for the product/service to be released? Purchasing utility tokens often comes at a large discount compared to the cost of the product/service after the official launch. Therefore, the holder of the utility tokens can purchase the product/service at a reduced price as a a reward for helping to fund the project at its preconceived/premature stage.
It is important to note that utility tokens are not an investment and therefore free from federal laws governing securities.
On the other hand, equity tokens entitle the holder to ownership rights in the organisation, similar to traditional stock. Due to the nature of equity tokens, they are regulated by the Securities and Exchange Commission (SEC). Very few companies offer equity tokens as most of the companies pursuing digital tokens are start ups and do not have the resources or guidance available to adequately meet and maintain ever-changing federal regulations.