Glossary
Native tokens
The first blockchain-based cryptocurrency was bitcoin, which was launched in 2009. It is called a cryptocurrency because its security is maintained by cryptography, and the original idea of bitcoin was to be used as digital money. Since then, several cryptocurrencies have been developed, establishing a cryptocurrency market.
Some of these cryptocurrencies are native to a blockchain like bitcoin is the currency of the Bitcoin network. Other examples of native cryptocurrencies are litecoin, dogecoin, and ether. We have already seen that some blockchains allow the execution of smart contracts, so creating tokens on top of such blockchains is possible. Several tokens were built on top of the Ethereum and Neo networks, for example. The idea of many of these tokens is to be used as a form of currency, so they are also commonly called cryptocurrencies.
It is usual to differentiate native currencies, also known as native tokens, r, from tokens created through smart contracts. We often call these native tokens coins, while tokens are just called tokens. However, there is no consensus on using such nomenclature, and confusion between native tokens and tokens based on smart contracts is expected.
Native tokens are governed by the network protocol. In the case of Bitcoin, coins are created every 10 minutes on average through mining. In the case of Ethereum and Neo, tokens are created and destroyed every few seconds. The community defines such rules, which can only be changed through consensus.
Tokens created by smart contracts are governed by the contract code, which is solely up to its developers. In general, the code of smart contracts is public and transparent, so it is possible to discover the economics of the token before interacting with them.
Anyone can create their own token by writing a smart contract. Nowadays, creating a token and calling it a cryptocurrency is straightforward. Therefore, care must be taken when acquiring a token. Many tokens are made without any purpose. Thus, native tokens, or coins, tend to be more reliable, as they are supported by the entire community, and their lifecycle is linked to the lifecycle of the blockchain itself.
Native tokens also often have a purpose. Ethereum’s coin, ether, is used to pay the gas fee to use the network. The Neo blockchain has two native tokens: NEO and GAS. The NEO token is used for network , while GAS is used to pay the gas fee. Neo holders earn GAS over time, especially when participating in network governance through voting. Thus, users are encouraged to participate, receiving a financial incentive for doing so.
