What is the difference between a Wrapped Token and a Native Token?

When it comes to cryptocurrency, there are two main types of tokens: wrapped tokens and native tokens. So, what is the difference between the two, and which one is better?

In this blog post, we’ll explore the differences between wrapped and native tokens, and shed some light on which one is better for you.

The rise of cryptocurrency

To start, let’s take a quick look at the history of cryptocurrency, which is an interesting one.

Satoshi Nakamoto introduced the world to Bitcoin, the first decentralized cryptocurrency. Since then, hundreds of cryptocurrencies have been created, with more being created every day.

One of the main reasons for the popularity of cryptocurrency is that it offers a way to transact without the need for a third party, such as a bank. This is because cryptocurrency is built on blockchain technology.

Traditional payment methods always involve a middleman in the transaction. With cryptocurrency, there is no middleman; you can send and receive payments directly from person to person.

There are many cryptocurrency trading platforms, such as Kraken or Coinbase, which have continued to emerge as the popularity of cryptocurrency has increased.

In recent years, artificial intelligence (AI) has made its way into the cryptocurrency world. AI is being used in a variety of ways, such as to predict market trends, automate trade executions, and more.

As AI continues to enter the cryptocurrency space, it’s important to understand the difference between wrapped and native tokens. So, let’s look at the definition of each type of token.

What are native tokens?

So, what exactly are native tokens? They are the original cryptocurrency tokens that were created on a particular blockchain. For example, Bitcoin (BTC) is a native token on the Bitcoin blockchain, and Ethereum (ETH) is a native token on the Ethereum blockchain.

These tokens are used to power the corresponding blockchain and to pay for transaction fees. They are also used as a form of currency to buy and sell goods and services.

The main advantage of native tokens is that they are an integral part of the corresponding blockchain. This means that they are more secure and have more functionality than other types of tokens.

What are wrapped tokens?

Wrapped tokens are cryptocurrency tokens that have been created on one blockchain and then “wrapped” on another blockchain. The most common examples of wrapped tokens are Wrapped Bitcoin (WBTC) and Wrapped Ethereum (WETH).

These tokens are used to bridge the gap between different blockchains and to enable cross-chain transactions. For example, you could use WETH to buy goods or services on the Ethereum blockchain, without having to convert it back to ETH.

The main advantage of wrapped tokens is that they are much more versatile than native tokens. This is because they can be used on multiple blockchains, not just the one they were created on.

How do native tokens and wrapped tokens work together?

Now that we’ve explored the differences between native and wrapped tokens, let’s look at how they work together.

One of the main advantages of using both native and wrapped tokens is that it allows you to take advantage of the strengths of each type of token. For example, you could use WETH to buy goods or services on the Ethereum blockchain, and then convert it back to ETH when you want to transact on the Bitcoin blockchain.

This would allow you to take advantage of the security and functionality of native tokens, while also being able to use your tokens on different blockchains.

Another advantage of using both native and wrapped tokens is that it allows you to create new tokens that are pegged to the value of either type of token.

Wrapping token and the interaction with a dAPP

A dAPP is a protocol for permissionless lending, borrowing, and trading. The main advantage of using a dAPP is that it allows you to interact with the blockchain without having to go through a third party.

For example, if you wanted to borrow money from someone on the Ethereum blockchain, you could do so without having to go through a bank.

Wrapped Bitcoin replacing the original bitcoin allows people to make transactions using dAPPs and decentralized exchanges within its ecosystem, instead of being confined only as internal currency for smart contracts.

Conclusion

There you have it, the differences between a wrapped token and a native token, and how they work together.

While the cryptocurrency space can be a daunting one, with a bit of research and ongoing exploration into the various components that make up digital currency, you’ll become an expert in no time.

With state-of-the-art AI Volatility Protection and everything else you need to customize the perfect trading strategy, CurPay is like having a financial advisor in your corner 24/7. So, if you are ready to start trading crypto, then be sure to check out CurPay today.