The news is by your side.

Native Blockchain Tokens

0 1

Get real time updates directly on you device, subscribe now.

Here I will use the word ‘token’ generically to mean any units recorded on
any blockchain.
Cryptocurrencies such as Bitcoin and Ethereum use native tokens BTC
and ETH respectively. These units are needed to incentivise miners to
create valid blocks without an external party to fund the participants.
ETH is also used to pay Ethereum miners to run smart contracts. The
tokens are also known as ‘intrinsic’ or ‘built-in’ tokens. They are
inseparable from their blockchain systems, and are used both as an
incentive for participants to keep the blockchains running, and as a
payment mechanism to use the blockchains.
How do these native tokens come into existence?
Intrinsic tokens are created by the same blockchain software that keeps
track of ownership of these units. They are created transparently by
software in the mining process according to a schedule defined by the
blockchain protocol. All participants agree to abide by the protocol rules.
What backs native tokens?
Nothing ‘backs’ these native tokens. They just exist and have value. The
gold analogy is useful here. When you hold physical gold it is not ‘backed’
by anything; it is just valuable in itself. With native tokens there is no
issuer to whom you can return a token, to redeem for an underlying asset,
any more than you can go to a ‘gold issuer’ (mother nature?) and redeem
your gold for something else.
Satoshi Nakamoto created the idea of Bitcoin, but is not the issuer of the
BTC units. Bitcoin miners create BTC according to some mutually agreed
constraints, but they are no more the issuer of BTC than a goldprospector
is the issuer of the gold that they discover.
Where do native tokens derive their value?
Their value comes partly from their usefulness and partly from their
speculative value. Let’s use the gold analogy again. Gold derives its value
from two sources. Firstly, it is useful for filling gaps in your teeth, for
certain technical or industrial processes, and, because it is pretty and
doesn’t tarnish, for wearing as jewellery. Secondly, gold has a speculative
value arising from its scarcity, general desirability, and its long price
Native tokens are useful because they can be used in a specific context.
The context for the BTC token is the Bitcoin blockchain and the context
for the ETH token is the Ethereum blockchain. Bitcoins, like gold, don’t
represent an asset, they are the asset. As considered in our earlier
discussion about different types of money, bitcoins are representative
money. Native tokens also have speculative value as some people want to
buy and hold them, just like any other asset that speculators can buy and
Examples of native tokens
Some of the more well-known examples of intrinsic tokens:
• BTC on the Bitcoin blockchain
• ETH on Ethereum
• NXT on the NXT platform
• XRP on the Ripple network
There are many more, and they all differ slightly. Since 2018, native
tokens that are not issued or backed by anyone have been increasingly
described as ‘cryptocurrencies’. The word ‘token’ is increasingly confined
to those tokens issued by projects which are redeemable for a product or
service at a later stage. But definitional boundaries are blurred. For
example, ETH, although widely described as a cryptocurrency, was issued
by the Ethereum Foundation during their crowdsale, whereas BTC has
not been issued by anyone. EOS tokens were issued before their
blockchain went live and those tokens can be swapped into native tokens
that run on their blockchain. I suspect that terminology will continue to
What are intrinsic tokens for?
As discussed, intrinsic tokens are the incentives for miners to do their
jobs. But each blockchain has its nuances. We have explored BTC and
ETH in detail earlier. Ripple and NXT are two other cryptocurrencies
which have some interesting twists.
The Ripple network uses tokens called ripples, with a ticker symbol XRP
aligned with the ISO currency standards. On the Ripple network all, the
XRP tokens were created at the beginning—all the XRP that will ever
exist were pre-mined and shared out among key participants. Each
transaction on the Ripple network needs to include a small amount of
XRP as a transaction fee. Unlike Bitcoin and Ethereum, XRPs are
destroyed by block makers, rather than being claimed by them as is the
case with Bitcoin and Ethereum. Therefore the total number of XRPs in
circulation decreases with time. The XRPs destroyed in each transaction
ensures that transactions have a tiny cost, preventing transaction spam
which can happen if transactions are costless to create.
The NXT network uses pre-mined NXT tokens. Each transaction on the
NXT network requires a fee to be added. The fee goes to the block maker
(in NXT this is called a ‘forger’ instead of a ‘miner’). Therefore, the total
number of NXT remains constant with time.

Get real time updates directly on you device, subscribe now.

Leave A Reply

Your email address will not be published.

Subscribe to our newsletter
Sign up here to get the latest news delivered directly to your inbox.
You can unsubscribe at any time

This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish. Accept Read More