Why do blockchains create their own tokens
New tokens are introduced regularly as the digital asset technology grows. Discover why we see new ones being introduced to the market.
Why do blockchains create their own tokens
A new token is introduced whenever a new distributed ledger technology (DLT) is created. However, there is a misconception that the tokens are needed for the network to function. The truth is that it’s the other way around in which it is the token that needs the platform.
To better understand how this works, one must first be familiar with what DLTs are and how they are used to handle digital assets. Cryptocurrencies come in many forms and each one serves varying functions but there will be times when their properties are too similar to differentiate. The main variable that keeps them unique from each other is the network they circulate.
Clarification: Platforms are made for the token
Creating a platform always comes with a digital asset being minted. The specific properties of these cryptocurrencies from how many there are to how they are generated/earned by users of the platform depend on the developers’ intention. They create crypto token with a specific purpose and that is what defines the network.
The token is only an asset that can be transferred and stored at the end of the day. The properties of the platform make them special like its scalability, DLT structure, and even its cyber security systems. The best example of this is Ether (ETH), the utility token of Ethereum, which grew valuable because of how useful the platform is in supporting all projects.
Various purposes for making a platform and token
There are many reasons why a platform and crypto token is created. Many of which fall into one of the following categories while others are either too niche or too specific to serve their own vision of what decentralised finance (DeFi) should be. Here are some examples:
Provision of finance solutions
The most common reason for creating new tokens is to make the next Bitcoin (BTC) or Ethereum (ETH). However, the modern state of the market shows that it is already settled on these two as the leaders of the industry. New projects in crypto token development platforms instead focus on providing solutions to make existing assets easier to adopt for all industries.
Projects that benefit from other crypto resources
Creating new networks for every project idea is no longer the trend. Instead, developers make their own crypto token on existing networks that can support multiple layers like Ethereum. This idea makes it possible to expand the usability of an already existing network while benefiting from pre-existing solutions and services within the same blockchain.
Support for digital asset liquidity
Creating new liquidity solutions also greatly helps existing networks like Ethereum and Bitcoin become easier to trade. This helps stabilise the asset’s market prices while also making trading experience feel easier for more passive investors. Thus, ensuring that their prices remain above the price floor across all markets.
The platforms for making tokens
If you are interested in creating your own crypto token, then you should start by developing it on a big platform. Help them expand to improve the state of the crypto market in general while also benefiting from these platforms’ extensive networks:
Ethereum (ETH)
Ethereum is currently the biggest blockchain right now for developing new layers and forming smart contracts that can interact with the most number of users. The assets you can create range between ERC20, ERC721, ERC1400, and ERC1155 and each one can benefit from unique channels with wallets.
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BNB Chain (BNB)
The acronym unofficially stands for ‘build n build’ now that the network became a community-driven open-source blockchain ecosystem. It represents the original owner and initiator, Binance and their digital asset called Binance Coin (BNB). The token standards you can use on the network include BEP20 and BEP721.
Solana (SOL)
The Solana network has a simpler structure than Ethereum in an attempt to provide a more user-friendly platform for creators worldwide. Instead of providing token making features on multiple channels, they all belong in just one. This is the Solana program library (SPL) and it’s a software program where all token standards come together, making all assets highly interactive.
Tron (TRX)
Tron originally started as a layer 2 blockchain on the Ethereum network until they separated to make their own token-making platform. This brought to life the Tron Blockchain Platform dedicated to hosting entertainment-based decentralised applications (dApps). Token standards in Tron are divided into TRC20 and TRC721 for all kinds of projects.
Why create a cryptocurrency token?
You don’t need to create a token to become a contributor to the crypto industry. The majority of its members are investors and traders that help keep the market in a healthy state. You only need to make a token if you wish to start a dApp project or your own DLT network that you want other people to use.
Making a network means requiring the processing power to make its algorithm operable. You will also need to distribute its ledger to miners/validators but they won’t volunteer for nothing. Thus, you will require ways to pay them and the best way to do it is to introduce a token that can be used on your network.
The value of the asset will always start with virtually ‘nothing’ when beginning this project. It will be dictated by the value of the services your network offers and the scarcity of said resources. The more people need your project’s tools, the more valuable the native token becomes.
Why do platforms create their own tokens?
All networks listed above provide the tools for making all kinds of tokens. Therefore, the question remains is why do each of them have a central digital asset? Ethereum has ETH, BNB Chain has BNB, Solana has SOL, and Tron has TRX. The answer is that all of these are designed to be utility tokens.
A utility token is a type of cryptocurrency created to use the network’s services. That includes starting a project, using its tools, or even making a transaction. Every action requires the platform’s native utility token to pay the miners/validators that provide the DLT’s processing power. These miners/validators are incentivised by financial rewards for their continued support.
Utility tokens eventually become valuable enough to be adoptable outside of their respective networks. This is the case with Ethereum which grew in popularity as a store of value and mode of payment similar to BTC. That’s why you can use it to bet on games and sports at Gamdom, the best crypto casino in the world.
