Coins, Tokens and Fees
Every consensus lesson ended with a reward: new coins and fees for whoever produced the block. Those coins are the cryptocurrency built into the chain. This lesson looks at them the way an engineer does, as a mechanism with a job, and leaves prices aside. Nothing here is financial advice; market prices of these assets swing widely, and they are not the subject of this course.
The rule
A native coin pays for the chain; a token is an entry in a contract.
Native coins are part of the protocol itself, such as BTC on Bitcoin and ETH on Ethereum. The chain's own rules create them and use them:
- to pay transaction fees, which ration the limited space in each block;
- to reward the miners or validators who produce blocks;
- as stake on proof-of-stake chains.
The protocol also fixes the issuance rules. Bitcoin's supply is capped at 21 million coins, and its block subsidy halves every 210,000 blocks. Ethereum has no fixed cap: it issues new ETH to validators and destroys (burns) part of every transaction fee, so its total supply can rise or fall.
Tokens are created by a smart contract running on an existing chain. The contract keeps a table of addresses and balances, and "sending a token" means calling that contract's transfer function. Shared standards describe the common functions so that wallets can handle any token that follows them: ERC-20 for interchangeable tokens on Ethereum, and ERC-721 for unique ones, often called NFTs. Anyone can deploy a token contract, so a token's existence says nothing about its quality or whether its issuer is honest.
One consequence matters every day: even a token transfer pays its fee in the native coin, because it is still a transaction on that chain.
The shortcut
Ask "whose rules create it?" If the protocol's rules create it, it is a native coin. If a contract's code creates it, it is a token.
The setup
The co-op deploys a contract on Ethereum that tracks a balance of "CoopPoints" for each member.
The trap is assuming a token carries the security or backing of the chain it runs on. The chain guarantees only that the contract's code runs exactly as written. What the token represents depends entirely on whoever issued it.
Drills
Answer fast — trust the rule.
Which of these is a native coin?
Meera holds 500 CoopPoints but no ETH. Why can't she send any points?
What rations the limited space in each block?
A token runs on a secure, well-known chain. What does that guarantee?
Remember
- A native coin pays for the chain; a token is an entry in a contract.
- Shortcut: ask whose rules create it. The protocol means coin; a contract means token.
- Trap: a token inherits the chain's execution guarantee, not any promise about its value or issuer, and its fees are paid in the native coin.