What Are Native Tokens?
A native token is a digital asset that is specific to a certain blockchain. Unlike tokens one might create on top of another blockchain, they are essentially integrated into the very protocol of their respective blockchain: the blockchain creates them and governs their behavior. They are used to pay for transaction fees, incentivize network participants, and secure and maintain decentralization of the network.
Unlike other types of tokens, which might represent anything from real estate, stocks, or even other cryptocurrencies, native tokens are inherent in the working of their respective blockchains and thus lay the foundation. In essence, these tokens form the very bloodstream that keeps the blockchain ecosystem alive-to drive the core activities and keep the ecosystem running smoothly.
Key Functions of Native Tokens
This token has some core functionality, apart from existing as a basic digital currency. Core native tokens include:
- Transaction Fees: Native tokens are typically used to pay blockchain transaction fees. For example, Bitcoin (BTC) pays transaction fees on the Bitcoin network and Ether (ETH) on the Ethereum network.
- Staking: Native tokens can be staked on Proof-of-Stake (PoS) blockchains for network security. In return, stakers get rewarded with more native tokens.
- Governance: Some native tokens provide holders with voting rights on critical proposals concerning the blockchain's development, upgrades, and operational changes.
- Incentive: Native tokens are often used to reward miners or validators who help maintain the network integrity by processing transactions.
Examples of Native Tokens
To really understand the function of native tokens, it helps to walk through some prominent examples from various blockchain networks.
Bitcoin (BTC)
A royalty Ethernet token is none other than Bitcoin. It runs on the Bitcoin blockchain, and in principle, it is a consideration to be exchanged or held. On the Bitcoin network, BTC pays for transaction fees and rewards miners for their work.
Ether (ETH)
Ether is the token of native essencce for the Ethereum blockchain. ETH plays the principal role of gas fees (cost to perform an operation or a transaction) in the Ethereum ecosystem, staking in their Proof-of-Stake mode, or as the core of smart contracts.
Binance Coin (BNB)
BNB is the native token of the Binance blockchain and was introduced initially as an ERC-20 token from the Ethereum network before migrating to its chain. BNB pays fees for transactions on Binance exchange, staking, and all platform-related activities.
Cardano (ADA)
The native token of the Cardano blockchain is ADA, which is used for staking to validate transactions and as a medium of exchange inside the ecosystem. Because the Cardano blockchain design maintains a PoS consensus, users stake ADA to help secure and govern the network.
What Are the Differences between Native and Non-Native Tokens?
Native tokens are the primary digital assets that have use within their own blockchain networks, whereas non-native tokens are created and issued on top of an existing blockchain. They are not embedded in the protocol but are instead built by using the functionality that the blockchain gives.
Creation and Origin
- Native Tokens: These tokens are created within the protocol of the blockchain itself. Example: BTC is created as a part of the Bitcoin blockchain, and ETH is created as a part of Ethereum's system. Their creation and management are controlled by the consensus of the blockchain mechanism.
- Non-Native Tokens: Non-native tokens are typically set up using smart contracts or a token standard on an existing blockchain. For example, ERC-20 tokens can be created on the Ethereum blockchain but are not native to the Ethereum network.
Usage
- Native Tokens: These tokens make the core operations of a blockchain possible: they are put to use for the purposes of transferring, governing, staking, and rewarding participants in the network.
- Non-Native Tokens: These usually have an application in dApps, games, or platforms. They may represent assets, voting rights, or access to a service, but they do not actually help the blockchain become more functional.
Value and Security
- Native Tokens: The value of a native token is directly linked to the health and security of the blockchain that it is supposed to support. Consider the case of Bitcoin: the more secure and the more well-known it becomes as a network, the higher the demand for the BTC.
- Non-Native Tokens: The value of non-native tokens can fluctuate depending on whether the platform or project with which they are associated is in a good phase or not. Hence, while these tokens can still have some utility, their sale price is usually more volatile and dependent on the project's success more than any native blockchain.
Examples
- Native Tokens: Bitcoin (BTC), Ether (ETH), BNB, ADA, DOT.
- Non-Native Tokens: All ERC-20 tokens like Chainlink (LINK), Tether (USDT), Uniswap (UNI), BEP-20 tokens such as PancakeSwap (CAKE), and every other token created using Ethereum, Binance Smart Chain, or Solana.
The Digital Currency You Should Know About
Hence, native tokens perform many other functions beyond making a transfer of value. Blockchain networks are built on them, which means that the presence of native tokens provides various stakeholders with a mechanism of incentives to work together in increasing the security and growth of the ecosystem. Their primary functions-paying transaction fees, securing the network, and decentralized governance are critical to ensure that the blockchain is secure and adequately decentralized. Without such native tokens, many blockchain networks would find it very difficult to hold.