What do we mean by Native Tokens in Cardano?

Published in

Coinmonks

4 min readMar 14, 2021

Cardano is slowly implementing its final solution phases, the latest being the launch on native tokens in Cardano. This is considered to be the most important step after Shelley's Launch. Cardano’s native token architecture promises to give it a considerable edge over its competitors.

The Cardano Hard Fork combinator event was initiated on the 1st of March. This enhanced Cardano’s capability to issue native tokens on the blockchain. This is one step towards full Goguen release, leading up to smart contracts on Cardano. This means that Cardano has moved from a single asset system to a multi-asset system.

Everybody in the Cardano community will be able to mint their own native assets on Cardano.

• These assets/tokens will have all the key functionalities similar to Cardano’s native currency, ADA, such as the same level of safety and security as ADA itself.

• The most astonishing development is that people do not need to use or write smart contracts or custom code to create these tokens. The logic is based on the Cardano ledger, rather than smart contracts.

The current Ethereum tokenization process requires custom codes, that add to the complexity and security concerns. The tokens which are created using Smart contracts are non-native tokens. The underlying ledger does not support these tokens. Smart contracts are susceptible to bugs and thus security risks. Mary Hardfork and the Cardano native token architecture create a zero barrier for Ethereum tokens to migrate to Cardano.

• There are no smart contract fees required to talk to the blockchain, hence the total cost of a transaction is low.

• When it comes to sending and receiving, any wallet address can be used to send and receive both ADA and native tokens. Also, you can send multiple tokens in a single transaction, this further lowers the transaction cost incurred from multiple transaction fees.

There are, however, 2 distinct differences between the native tokens and ADA.

1. Unlike ADA, native tokens can be created and destroyed.

2. Service fees, rewards, and deposits will be paid using ADA only.

The Cardano ledger supports both Fungible and Non Fungible tokens without specialized contracts. It can store a mix of both types in a single output.

The core principles which drive the native token framework are:

1. Lightweight: Cardano’s multi-asset ledger structure is built around native bundles (values). A token bundle is a mix of ADA and other tokens. The tokens have Asset IDs, that include a hash of the minting policy, as that is the part that is not stored in the ledger and is customizable. The token bundle has a 2 level map structure which enables Fungible and non Fungible tokens to be represented uniformly.

2. Affordability: The transfer of assets in the ecosystem does not carry any execution free, which makes it cheaper.

3. Security: In Cardano, all native token transfer logic is coded in the ledger. This ensures the predictable and uniform behavior of the system. The native tokens share the same security ad ADA itself.

4. Unified Processes: Considering the common logic coding in the ledger, all tokens will be handled in the same way, creating a unified process. This will lead to fast development and better decision-making.

In Daedelus Flight, just under the Ada balance, you will see a new ‘Tokens’ button. As of today, both fungible and non-fungible tokens can be minted using the CLI interface. This requires some amount of technical knowledge. In the coming days, a user-friendly interface will be available which will make it easier for anyone to mint their Fungible Tokens. NFTs will be made available in the UI after that.

The next Hard Fork is Alonso. Over time with Babel transactions and programmability which is coming with the third hard fork, Cardano will become a good platform for stablecoins and security tokens. There are groups that have already started minting NFTs on Cardano. These will be considered one of the firsts in the Cardano Blockchain.

Read the Previous article: Cardano Fund 4 overview and Top proposals — Part 1

Note: This post was first published here for Cryptowriter in association with voice.com.

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