In the blockchain industry, a common source of confusion is understanding the different types of tokens and how they function. Many people are unaware that not all tokens are part of a blockchain's core protocol. Some tokens can be created by anyone on programmable blockchains like Ethereum Classic (ETC). This article aims to clarify these distinctions by exploring key concepts and practical examples.
What Are Native Coins?
When Bitcoin (BTC) was invented, new coins were issued whenever miners created a block. Following Bitcoin's example, Ethereum Classic (ETC) was created in a similar manner. Both BTC and ETC can be described as "community fiat tokens" used to compensate miners for their work in securing these networks.
Interestingly, both BTC and ETC are considered hard money and are often viewed as digital gold. This is because they are only issued when miners expend significant computational work and electricity. The unforgeable scarcity of these coins, combined with their fundamental economic use case of paying block rewards, gives them inherent value.
Additionally, native coins like BTC and ETC are used to pay transaction fees in proof-of-work (POW) blockchains, adding another layer of economic utility.
Understanding Programmable Native Coins
Some blockchains function simply as ledgers for accounts and balances. In these networks, users can only perform basic transactions—sending coins from one account to another by submitting transactions and paying fees directly.
Ethereum Classic, however, is a programmable native coin. This means that users can not only perform standard transactions but developers can also deploy smart contracts to the ETC blockchain. These software programs become decentralized applications (dapps) once stored on the network.
Smart contracts enable various cryptocurrency management applications, including decentralized exchange trading, NFT purchases, and asset planning with inheritance rules. This programmability significantly expands ETC's utility beyond simple transfers.
What Are ERC-20 Tokens?
The programmability of smart contracts enables the creation of numerous assets within Ethereum Classic. Among these creations are non-native tokens developed using the industry-standard ERC-20 token specification.
ERC-20 tokens are units of value similar to native cryptocurrencies, but they are actually created as applications within the blockchain. They are not native tokens because they aren't part of ETC's core protocol and lack fundamental economic use cases like paying block rewards or transaction fees.
However, ERC-20 tokens can still hold value if they serve specific purposes within dapps, such as providing utility functions or enabling governance mechanisms where users can vote on ecosystem developments.
Examples of ERC-20 Tokens on Ethereum Classic
Within the Ethereum Classic ecosystem, users can directly invest and trade ETC while also leveraging the blockchain to issue, purchase, and sell ERC-20 tokens. Some notable examples include:
HebeToken ($HEBE): An ERC-20 token issued by HebeBlock, an ETC development team that has created several applications including HebeSwap, HENS, a wallet, and ETCInscribe.
ETCPOW ($ETCPOW): An ERC-20 token issued by the ETCMC development team, which has launched plug-and-play hardware nodes, an ETC mining pool, and a decentralized exchange.
Wrapped ETC ($WETC): A special type of ERC-20 token that accepts native ETC as deposits and issues wrapped tokens to users at a 1:1 ratio, enabling ETC to be used within dapps that primarily support the ERC-20 standard.
Why ETC Is Used as Wrapped Tokens in dapps
Although wrapped tokens represent native coins at a 1:1 ratio, they exist primarily because the ERC-20 token standard was created after the launch of Ethereum Classic and Ethereum. Since dapps primarily use the ERC-20 standard, using native cryptocurrencies within these applications presented technical challenges.
Wrapped tokens were created to solve this problem by representing native coins from each network through ERC-20 compatible tokens. This is why WETC exists alongside native ETC within the Ethereum Classic ecosystem.
Beyond internal dapp usage, WETC is also issued on other blockchains to represent ETC locked in smart contracts on the original chain, enabling cross-chain functionality.
Monetary Policies: ETC vs. ERC-20 Tokens
Ethereum Classic follows a monetary policy similar to Bitcoin's. ETC was initially issued at a rate of 5 coins per block, with this amount reducing by 20% every 5 million blocks (approximately every two years). This schedule ensures that only 210,700,000 ETC will ever be created throughout the network's history.
In contrast, ERC-20 tokens can have any type of monetary policy determined by their developers. For example, ETCPOW is continuously issued as rewards for users utilizing various services. HebeToken has a fixed total supply of 500,000,000 units, with approximately 102,000,000 issued at the time of writing.
The value of each token unit ultimately depends on its application's utility, use cases, popularity, and the soundness of its monetary design.
Frequently Asked Questions
What is the main difference between ETC and ERC-20 tokens?
ETC is the native cryptocurrency of the Ethereum Classic blockchain, used for paying transaction fees and securing the network through mining rewards. ERC-20 tokens are created using smart contracts on top of the ETC blockchain and serve various purposes within decentralized applications.
Can ERC-20 tokens be mined like ETC?
No, ERC-20 tokens cannot be mined. They are created and distributed according to the rules established in their smart contracts, which may include mechanisms like initial distributions, rewards for specific actions, or other allocation methods determined by the token creators.
Why would someone use wrapped ETC (WETC) instead of regular ETC?
Wrapped ETC enables the native cryptocurrency to be used within decentralized applications that only support the ERC-20 standard. It also facilitates cross-chain functionality, allowing ETC to be represented on other blockchain networks while the original coins remain secured on Ethereum Classic.
Are ERC-20 tokens on Ethereum Classic compatible with other blockchains?
While ERC-20 tokens follow a standardized interface, compatibility with other blockchains depends on specific bridge implementations and cross-chain protocols. 👉 Explore cross-chain strategies for more information on how tokens can move between different networks.
How can I ensure the legitimacy of an ERC-20 token on Ethereum Classic?
Always verify token contracts through blockchain explorers, check developer documentation, and research the team behind the project. Look for audits, community feedback, and clear use cases before engaging with any ERC-20 token.
Do all ERC-20 tokens have value?
Not necessarily. The value of an ERC-20 token depends on its utility, demand, and the success of the project it represents. Some tokens may have little to no value if they lack practical applications or community support.
Conclusion
Understanding the distinction between Ethereum Classic's native coin (ETC) and ERC-20 tokens is crucial for navigating the blockchain ecosystem effectively. While ETC serves as the foundational currency securing the network, ERC-20 tokens expand the ecosystem's functionality through diverse applications and use cases. Both play important but distinct roles in the growing Ethereum Classic ecosystem.