The Role of Cryptocurrency in a Blockchain Ecosystem

While each network generally has its own main cryptocurrency, some networks support the ability to create new tokens. Networks such as Ethereum, Solana, Avalanche, Polygon, and more all let users create their own cryptocurrencies that can exist on-chain. However, whenever you complete a transaction on any of these networks, the transaction fee must always be paid using that network’s main token - for example on Ethereum, the fee for any transaction that occurs must always be paid in ETH.

Different chains often have different token standards, which can make them directly incompatible with one another. For example, the Ethereum and Solana networks follow different standards for their cryptocurrencies, with Ethereum tokens following the ERC (Ethereum Request for Comments) standard while Solana tokens use the SPL (Solana Primary Library) standard. Here are some key differences between the two:

• ERC: Ethereum’s ERC standard is the most common standard for cryptocurrencies because Ethereum is the most popular DeFi network. Any token that follows this standard can interact with and be deployed on the Ethereum chain. ERC also contains different standards for different types of tokens - for example cryptocurrencies are defined as being ERC-20 tokens while NFTs are defined as ERC-721 tokens. For a more in-depth explanation, check out the Ethereum documentation on token standards.

• SPL: Solana’s SPL standard creates a uniform token system for all cryptocurrencies on the Solana network, where any token that wants to be deployed on Solana needs to use this standard. It operates fairly similarly to ERC, but uses a different code template to create the tokens. SPL tokens are not compatible with the Ethereum network, and ERC tokens are not compatible with the Ethereum network. For a more detailed explanation of SPL, check out this article on SPL by CoinGecko.

💡 A fiat currency comparison

To better understand the idea of different tokens on a network, let’s present the idea of blockchain networks as countries. In this scenario, the Bitcoin network would be the USA and BTC would be the US Dollar. The Bitcoin network itself only supports BTC; no other tokens can exist on the network. This is similar to how in the US, the only currency that is accepted is USD. All transactions can only occur in and must be settled as BTC, just like how any purchase in the US generally must be made in USD.

The Ethereum network would be represented as Europe, with ETH being the Euro. While ETH is the main currency of the network, other cryptocurrencies exist on Ethereum. Similarly, while the Euro is the main currency of the EU, individual countries can have their own currencies. In the case of Ethereum, while other currencies do exist on the network, all users pay fees in ETH and the validators operating the network receive only ETH. This would be the equivalent of Europeans using their local currencies for general transactions but then paying all of their taxes in Euros and all EU government officials only being paid in Euros. Just like how EU residents are able to convert their Euros into local currencies, Ethereum users are able to convert their ETH into any other token on the network, as long as they continue to pay all transaction fees in ETH.

The real value of cryptocurrency aligns with the core idea of blockchain: independent asset ownership. These assets are all decentralized. No government can control them. There are no middlemen that are responsible for storing and managing all your money. In the world of crypto, your money belongs to you.

Because it is not controlled by any external entity, cryptocurrency creates a store of value that can be used to beat inflation.

Countries such as Turkey are experiencing massive inflation, with their inflation rate being over 75% in May of 2024. As a result, many of its residents have abandoned the Turkish Lira and turned to Bitcoin as a means of preserving their wealth as the value of their currency plummets.

Amid the conflict in Ukraine, Russia cut off access to banks for Ukrainian residents, limiting the supply of fiat currency in the country. As a result, stores have turned to taking Bitcoin as a form of payment. The country even takes donations in the form of crypto.

El Salvador became the first country to adopt Bitcoin as legal tender. This allowed thousands of residents access digital assets they could then use online. A large portion of the country is unbanked and rely on physical cash to pay for goods and services. With the introduction of Bitcoin and digital wallets, anyone can create a wallet in minutes and begin transacting online, making the Internet truly accessible to all residents of the country.

All of this is possible because of the decentralized nature of blockchain technology that empowers users to take control of their digital assets in a way never possible before.