Ethereum: Native Currency and Token

8. Native Currency vs. Token
KC Tam
Reach KC on LinkedIn: https://www.linkedin.com/in/ktam1/

Objective
In this section we introduce token, and compare the
implementation of token and of the native currency.

Source: screenshot from coinmarketcap.com at a randomly selected time
Note: these two are selected just for comparison between native currency and token. There is no comparison on their price and
performance from investment perspective. No investment recommendation on anything is made.
While both of them use ledger to keep the balance, they are implemented differently. We call
Ethereum a native currency, while EOS is a token.
To investors, these are just two different investment products.

Native Currency Token
Built-in currency inside a cryptocurrency system,
which has its own infrastructure holding the ledger.
A contract keeping a balance table and running on
top of a contract platform.
The ledger is handled by a Distributed Ledger
Technology (DLT). The most common DLT
nowadays are blockchain. But there are others
such as Directed Acyclic Graph (DAG).
Not related to any DLT.
Being "distributed" and "decentralized" because the
native currency is a "state", which is agreed across
the whole infrastructure (every node agrees on this
state).
Being "distributed" and "decentralized" only
because the underlying contract platform is
distributed and decentralized.
The contract is still held by a contract owner, and
from this point, Token is not completely
decentralized.
Examples: Bitcoin, Ethereum, Litecoin, Zcash,
IOTA.
Examples: EOS, TRON, OmiseGO, which are
tokens on top of Ethereum smart contract platform.

Ethereum Network
Alice Bob
Alice's Address Bob's Address
State: 100 ethers State: 0 ethers
In Ethereum, native currency (ethers) is a state
associated to an address.
In this example, when we say Alice has 100
ethers and Bob has none, these are the states of
Ethereum network.
These states are agreed across the Ethereum
network.
The state is part of the blockchain: the ethers will
be there as long as Alice has the private key to
access it.
Native Currency

Ethereum Network
Alice Bob
"Transfer of Ether" is a transaction inside
Ethereum network, and triggers a state change.
For example, Alice is sending 5 ethers to Bob. It
is done natively in Ethereum network.
This transaction is confirmed by miners and the
state will be updated.
And most importantly, the whole Ethereum
network agrees this change.
5 eths
Native Currency

Ethereum Network
Alice Bob
Assuming a Token Contract is deployed on this
Ethereum network. This Contract is represented
by a Contract Address.
If we say someone holds somes token, it is an
entry of record stored inside this deployed
contract.
In this example, we see Alice has 500 tokens,
and Bob has 100 tokens. They are not state of
Ethereum network, but just a record inside the
Token Contract.
Token Contract Address
Token Contract
Owner: someone
Balance:
● Alice's address: 500 tokens
● Bob's address: 100 tokens
● …

Ethereum Network
Alice Bob
Alice's Address Bob's Address "Transfer of tokens" is a function executed on the
Contract.
In this example, if Alice sends 50 tokens to Bob,
it is not done natively on Ethereum. Rather, Alice
is executing a "transfer" function onto the
Contract.
Upon receiving this request, Contract updates
the entries of both Alice and Bob, and the result
is reflected on the updated balance record.
50
tokens
Transfer 50
tokens to Bob
Token Contract
Token Contract Address
Owner: someone
Balance:
● Alice's address: 500 450 tokens
● Bob's address: 100 150 tokens
● …

Token Summary
Token is issued by Token Issuer (no limit on number of issuers in Ethereum, and therefore no limit on the
number of tokens issued on Ethereum)
Token Issuer determines token name and token quantity and the mechanism of token distribution (through
ICO or private placement)
Each token is a Deployed Contract on Contract Platform, and therefore identified by a Contract Address
● Ethereum by far is the most common Contract Platform
● Standard interface (e.g. ERC20) is defined for ease of use token
Every user (identified by its address) can own multiple tokens. There is no limit on number of tokens a
user can own

Ethereum by far is the most
common contract platform
for tokens.

Level of Trusts
We trust Ethereum Network, because
● all nodes implementing Ethereum protocol follow the rule
● the ledger is secured by blockchain technology
● the ledger is decentralized and distributed in all participating nodes
We trust Token, because
● the token contract is securely defined and with no security problem (e.g. no backdoor or can be
modified if one wishes)
● the token contract is viewable and auditable publicly
● the ledger (record) of individual token owners is stored inside Ethereum contract platform, and we
trust Ethereum per reasons above

Metamask is a wallet (a browser plug-in)
From this example, we see,
● This account is in Rinkeby Testnet and
represented by address (0xdC919…)
● This account has 2.995 ethers
● This account owns three types of tokens
(corresponding to three deployed token
contracts)
● The quantity of each token
Note
Symbol and name of token are determined by issuers.
There are chances of duplication (like this example), but
they are identified by different contract addresses
User's View

Summary
We have compared tokens with native currency (ethereum),
and see how the mechanism of transfering is different
between them.

Ethereum: Native Currency and Token

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