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April 25, 2022

Why does every blockchain need its own token?

Welcome to the cryptohunt jam where we spend one minute a day to explain crypto. In plain english.

Have you always been curious why every blockchain has their own token, often called the “native token”, governance token, or rewards token? 

You’ve probably seen it in many places: Ethereum has Ether, Polygon has Matic, Celo had Celo Gold but renamed it to Celo. But why?

The reason lies in the way it all works. A decentralized blockchain needs to operate across a large network of independently operated computers, known as nodes. These nodes perform all the work that keeps the blockchains going: They validate transactions, record their history, and execute smart contracts.

But all of that isn’t free. There are people who buy those computers, hook them up to the internet, and pay the power bills. That’s why fees exist, usually called transaction fees or gas fees. Whoever wants to do something on the blockchain has to pay those fees with each transaction. Want to buy an NFT on OpenSea? Pay the price plus fees. Send someone some Lizard Coin? Pay a little in fees.

And that’s exactly what those native tokens like Ether are for. They are a universal currency within that blockchain to pay fees to others for doing the work for you. Using a single such currency for fees keeps things simple across all participants. 

So next time someone says they own Ethereum, feel free to correct them. Because really what they own is Ether, Ethereum’s native token.

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