Introduction#
One of the cores of Web3 is digital assets, among which the most common are cryptocurrencies and tokens. Although these two seem similar, they have significant differences.
Cryptocurrency:#
Cryptocurrency is a form of digital asset that primarily serves as a medium for transactions, value storage, or exchange. The most famous examples are Bitcoin and Ethereum, both of which are cryptocurrencies.
Characteristics:
- Decentralization: There is no central bank or single entity controlling it; it relies entirely on blockchain networks for verification and processing.
- Independent value storage: They are often used as tools for storing value, can be directly used for transaction payments, or serve as a hedge asset (for example, Bitcoin is seen as "digital gold").
- Circulation on public chains: Such as the Bitcoin network and Ethereum network, these currencies can circulate freely on a global scale.
Token:#
Tokens are digital assets issued based on existing blockchain platforms. They can serve as a medium for value exchange and are often associated with specific applications or services. Tokens are usually linked to the smart contracts of the blockchain platform and are used within specific ecosystems.
Characteristics:
- Attached to a specific blockchain: Tokens typically do not have their own blockchain but are created based on other platforms (such as Ethereum, Binance Smart Chain, Solana, etc.).
- Diverse uses: Tokens can represent many things, such as:
- Governance rights (like DAO tokens, used for governing projects or platforms)
- Utility (like gas fees, in-platform purchases, etc.)
- Proof of stake (for example, staking tokens)
- NFTs (representing ownership of specific digital assets)
There are many examples of tokens: Chainlink (LINK), Uniswap (UNI), Aave (AAVE), all of which are tokens based on Ethereum or other platforms.
Key Differences:#
- Scope of use: Cryptocurrencies (like Bitcoin and Ethereum) are primarily used for value exchange and storage, while tokens are usually the "fuel" or "power tools (Pos)" within a specific application or ecosystem.
- Issuing platform: Cryptocurrencies typically have their own blockchain, while tokens are issued based on existing blockchain platforms (like Ethereum).
- Uses: The use of cryptocurrencies is relatively singular, mainly as payment tools or value storage; tokens can carry different functions (like payment, governance, asset representation) depending on the project.
Token Economics:#
Tokenomics is the study of designing and managing tokens, relating to their value, liquidity, and the ultimate market response. A good token economic model needs to balance user needs, the long-term development of the project, and the principles of decentralization.
1. Supply and demand model of tokens#
There are usually two ways to supply tokens:
- Fixed total supply: Like Bitcoin's total supply of 21 million, limited supply helps maintain long-term value scarcity.
- Dynamic adjustment: The total supply of some tokens can be adjusted based on market demand and project needs.
In addition to total supply, the liquidity of tokens is also key; tokens need to maintain a certain level of liquidity in the market to be widely accepted and used.
2. Token distribution#
Token distribution is key to a project's success. Reasonable token distribution can ensure fairness while providing sufficient funding support for project development. Common token distribution methods include:
- Team rewards: Allocating a certain percentage of tokens to the project team or founders.
- Community rewards: Incentivizing community users to participate through airdrops, rewards, or staking.
- Funding rounds: Raising funds through ICO (Initial Coin Offering), IDO (Initial DEX Offering), etc.
A successful token economic model needs to ensure sufficient funding support during the issuance phase and maintain the long-term health of the ecosystem through incentive mechanisms.
3. Governance function of tokens#
An important part of tokenomics is the governance function of tokens. Many projects adopt DAOs (Decentralized Autonomous Organizations) to achieve decentralized governance, allowing token holders to participate in the decision-making process of the platform, including voting, proposing, and modifying protocols.
Tokens are not just payment means; they also represent users' "rights" within the project. Through governance tokens, projects can maintain long-term decentralized operations and transparency.
Cross-chain Technology: The Bridge of Blockchains#
One of the significant challenges of Web3 is that data and assets between different blockchains cannot easily interoperate. Although each blockchain has its advantages, their isolation limits the development of the entire Web3 ecosystem. Cross-chain technology is designed to solve this problem.
What is cross-chain technology?#
Cross-chain technology refers to the technology that enables different blockchains to communicate and exchange data with each other. It acts as a "bridge," allowing assets and data on one blockchain to flow seamlessly to another blockchain.
Application scenarios of cross-chain:#
- Asset cross-chain transfer: Users can transfer tokens, NFTs, and other assets from one chain to another, which not only improves asset liquidity but also expands collaboration between different ecosystems.
- Cross-chain exchanges (DEX): Cross-chain technology allows decentralized exchanges of different blockchains to interconnect, enabling users to exchange assets across different chains without using multiple platforms.
- Cross-chain protocols: Through cross-chain protocols (like Polkadot, Cosmos), different chains can share data, collaboratively process smart contracts, etc., forming a more open and interconnected Web3 ecosystem.
Technical paths of cross-chain:#
Currently, the mainstream paths of cross-chain technology include:
- Cross-chain bridges: Using a "relay" method to lock assets from one blockchain and then issue equivalent tokens on the target chain, forming a bridge.
- Atomic swaps: Allowing users to exchange directly between different blockchains without needing to trust a third party.
- Relay chains: Such as Polkadot's relay chain architecture, enabling information exchange between different blockchains and ensuring the security of cross-chain operations.