Differences between native and non-native tokens.

Cryptocurrency Guide » Token » Native and non-native tokens.

Native Token

A native token is a type of token that is created on a specific blockchain network and is used as an integral part of that network. This token is usually used to pay transaction fees on the network, as well as to access specific services on the platform. Native tokens often play an important role in the network governance, as token holders can vote on proposals and changes to the platform.

The simplest example of a native token to understand may be bitcoin (BTC), which is used to pay transaction fees on the Bitcoin network.

Compound Native Token

A compound native token is a more advanced definition. It is not used in all crypto circles, but it is worth mentioning in case you hear about it.

This type of cryptocurrency are native tokens of a network, that is, they are used to pay the network fees and fall into this classification. However, these fees are not usually paid directly with the token, but with a different concept known as Gas.

The most obvious example of a compound native token is Ethereum's Ether (ETH), which is used to pay transaction fees on the Ethereum Network and is also used to finance and execute smart contracts on the platform.

However, fees are paid in Gas. But Gas does not always have the same amount of ETH, its value varies depending on network congestion.

To understand it better, it is common to make a analogy with gasoline: A vehicle (blockchain) needs gasoline (Gas) to function, which is bought with money (ether). However, the price of gasoline is not always the same, it has a market price that can vary, just like Gas in a blockchain.

There are native cryptocurrencies with even more complex systems, such as EOS, where resources like Gas are divided into RAM, CPU, and NET.

Non-native Token

On the other hand, non-native tokens are created on a blockchain network that uses a different token as its native currency. These tokens are created on the network using smart contracts and can be used to represent anything, from securities and real estate to utility tokens for a specific platform.

Blockchains define conditions that non-native tokens must fulfill. For example, in Ethereum, they must comply with the rules set by the ERC-20 standard. ERC-20 tokens can be used in any application that supports the standard and can be traded on cryptocurrency exchanges.

Some examples of non-native tokens are:

• Tokens created for a purpose within a blockchain, such as the Shiba Inu memecoin on Ethereum or the STEPN token on Solana.
• The above point also includes stablecoins. Unlike SHIB, which is only native to Ethereum, stablecoins are typically native to multiple blockchains. This helps improve the security of stablecoins across each blockchain.
• Synthetic tokens that are created through cryptocurrency bridges and represent assets that are not native to that blockchain. Some examples include wrapped bitcoin (WBTC) on Ethereum or native tokens like ETH or non-native tokens like SHIB on the Binance Smart Chain network.
• Derivative tokens are a type of token that is based on the value of another underlying asset, such as a cryptocurrency or a cryptocurrency index. Derivative tokens are usually used to speculate on the price of the underlying asset without actually owning it.

Security of native and non-native tokens

It is important to highlight an important point when differentiating native and non-native tokens, and that is security.

If your intention is to hold a cryptocurrency - that is, to hold it for a long term and wait for it to appreciate and sell it - it is highly recommended to do it in the native token of a platform as it has fewer associated risks.

A native token has the risks of the blockchain it belongs to. The non-native token is defined by a smart contract that may have errors or weaknesses, which reduces its security.

In case you want to hold a non-native token, it is better to do it in the blockchain where it is created. For example, if you want to hold SHIB, it is better to do it in the Ethereum blockchain, where you will have the risks associated with the Ethereum network and the smart contract that defines SHIB within this network. If you were to hold the SHIB token on the BSC network, in addition to these two risks, you would have to add the risks of the Bridge smart contract and the risks of the BSC blockchain itself.

Conclusion

In conclusion, native and non-native tokens of a blockchain are an integral part of the cryptocurrency ecosystem. Native tokens are used to fund the development of the blockchain and maintain its functionality, while non-native tokens are created for a variety of purposes, including representing digital assets and implementing smart contracts. Ultimately, the success of native and non-native tokens will depend on their adoption and usage in the cryptocurrency community, as well as the trust and security of the underlying technology.