What are Native Tokens

A blockchain's native tokens serve as its digital currency, providing a means of value exchange within the ecosystem. Each independent blockchain has its own native cryptocurrency used as a payment method, including for transaction fees and to reward miners and validators for adding blocks to the blockchain. These native tokens form an integral part of the blockchain's functionality and are essential to its operation.

Based on how a blockchain is designed, these types of tokens can function seamlessly within the network, which is why they are also referred to as intrinsic or base tokens. Besides paying fees, native tokens can be used for a variety of other purposes, including network expansion and growth, as mediums of trade, as collateral for borrowing, lending, and other financial activities, and as a crucial component of the network's security and consensus mechanisms. These diverse use cases make native tokens an indispensable element of any blockchain network.

Native tokens are frequently created through the "mining" or "staking" procedure, depending on the consensus mechanism employed by the blockchain. In proof-of-work (PoW) systems, such as Bitcoin, tokens are mined by solving complex mathematical problems that require significant computational power. In contrast, proof-of-stake (PoS) systems, like Ethereum 2.0, involve validators who put up a certain number of tokens as collateral (or "stake") to propose and validate new blocks. These mechanisms help maintain the integrity and security of the network while also providing an incentive for participants to contribute their resources.

The existence of native tokens within a blockchain ecosystem also facilitates the creation and use of secondary tokens, such as utility and governance tokens. These tokens often rely on the native tokens for underlying value and are used to power various functions within decentralized applications (dApps) or decentralized autonomous organizations (DAOs). While native tokens serve as the foundation of a blockchain network, secondary tokens enable the development of diverse applications and services within the ecosystem.

In summary, native tokens play a crucial role in the functioning and sustainability of blockchain networks. They provide a means of value exchange, facilitate network growth, and contribute to the security and consensus mechanisms. By enabling the creation of secondary tokens, native tokens also foster innovation within the ecosystem, paving the way for a wide range of applications and services built on top of blockchain technology.