What are Native Tokens?
The term "native token" refers to a token created on a certain blockchain. Previously, the word referred to the original token created for a blockchain with an internal usage. However, it has now expanded to cover any tokens created on that blockchain.
Native tokens include bitcoin, ether, and the stablecoin USDC, which was produced by Centre, a collaboration between Coinbase and Circle. USDC is built into various blockchains or supporting layers.
Understanding Native Tokens
When a blockchain is built, it is typically created to answer a specific problem. For example, the Bitcoin blockchain and its native currency, bitcoin, were designed to function as a payment system, with a reward structure in place to encourage blockchain security. Ethereum was created to serve as a platform for the development of other applications, with ether serving as a reward for blockchain activity. Tokens like these were considered native tokens at the time and for many years afterwards.
However, because cryptocurrency is still in its early stages, definitions and concepts evolve over time. As of December 2023, a native token is one that is generated and held on a specific blockchain. Its purpose or utility is irrelevant as long as it was created on the blockchain. A coin that was not minted on a particular blockchain is not native to that network. These are commonly referred to as non-native tokens.
Native Tokens and Forks
A forked blockchain token is also a native token because forking projects typically build a new blockchain and token from an existing one. A fork is a change to a blockchain that some users embrace but not all. Those who accept the modification run the new blockchain, while those who reject it continue to use the version from which it was forked.
The blockchain and token may be clones of the old chain, but they will be called differently, rendering the token on that chain a native token because it was minted on the forked blockchain.
Examples of Native Tokens
Notable examples of native tokens are bitcoin (BTC), ether (ETH), Binance Coin (BNB), Cardano's native token (ADA), and USDC.
USDC is an Ethereum-based stablecoin launched by Coinbase and Circle. It is tied to the dollar and has a reserve equivalent to the amount of circulating USDC (owned by BlackRock). According to the former definition, it was not a native token because it served no internal purpose on the blockchain. However, the stablecoin is currently minted (issued or created) and backed by Circle on a number of other blockchains, making it a cryptocurrency native to many chains.
Wrapped bitcoin (WBTC) is a bitcoin that has been tokenized (assigned a token) on the Ethereum blockchain using a smart contract. The bitcoin is sent to a custodial address managed by a smart contract, and a WBTC is produced on the Ethereum blockchain with a 1:1 bitcoin value.
WBTC can then be used in Ethereum's decentralised apps. When someone wants to convert it back to bitcoin (BTC), they send it to an address on the Ethereum network, where the WBTC is burned, and the smart contract delivers the bitcoin to the owner. This is the same technique that USDC utilizes to transfer value: smart contracts are used to burn USDC on the Ethereum blockchain and create a token on the target one. If USDC is native to the target blockchains, then WBTC is native to Bitcoin.
Read Also: What Is an NFT? Your Guide to Non-Fungible Tokens in 2024
What Is the difference between a coin and a native token?
Some people use the term "coin" to refer to cryptocurrencies. A native token is one that is created on the blockchain where it will be used and kept.
Is Ethereum a native token?
Ethereum's token, ether (ETH), is a native token because it was created and is used within the ecosystem.
Is ADA a native token?
Yes. ADA is the original token for the Solana blockchain, which was one of the first to implement proof-of-stake.
The Bottom Line
Native tokens are generated and held on a particular blockchain or its supporting layers. This definition differs from previous ones because the industry is still in its infancy and evolving.