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In the following sections we explain what are native cryptocurrencies, their primary, secondary and tertiary functions, and what gives them economic value. We also explain what are not native coins.
1. What Are Native Cryptocurrencies?
Native cryptocurrencies are the tokens or coins that are issued by a blockchain network protocol each time there is a new block produced.
Examples of these are Bitcoin, Ethereum, and Ethereum Classic.
2. What Are Native Cryptocurrencies Used For?
The primary use of native cryptocurrencies or coins is to compensate miners or stakers in proof of work or proof of stake blockchains for their role in organizing transactions and producing blocks.
The secondary use is to pay for transaction fees so that miners or stakers may include transactions in new blocks.
A tertiary use case of native cryptocurrencies is for the public in general to use them as money for any kind of transaction in the global economy or as a store of value for savings and investment.
3. What Is The Economic Value of Native Cryptocurrencies?
In their primary and secondary uses, native cryptocurrencies have a fundamental economic value of serving as mediums of exchange of the coins for the new blocks created in the networks and the inclusion of new transactions.
This gives native cryptocurrencies a natural economic demand since inception.
Similarly, as these cryptocurrencies have a base economic value in their primary and secondary uses, and are divisible and transferable, they have gained general economic value in the global economy as they have become sound money for payments and settlements, and gained status as stores of value.
4. What Are Not Native Cryptocurrencies?
Inside programmable blockchains it is possible to write software programmes to issue cryptocurrencies. The smart contract protocol used for these cases is the ERC-20 standard.
These are not native cryptocurrencies as they have no primary or secondary uses inside blockchains.
For example, Uniswap (UNI) is a dapp coin implemented as an ERC-20 token that only operates with the Uniswap decentralized exchange, USDT is a stablecoin implemented as an ERC-20 token that only represents dollars in an external bank account, wrapped Bitcoin is an ERC-20 token that represents a native cryptocurrency (Bitcoin) from another blockchain, and Shiba is purely an ERC-20 token with no primary or secondary use case.
We will explain this kind of coin in a future Emerald Blockchain Course class.
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