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When you're starting with cryptocurrency, there are a lot of terms and concepts that can be overwhelming. One of the most important concepts is understanding networks and how tokens interact with them. This guide will help break down these ideas and explain the differences between networks and how tokens are compatible or incompatible across them.
A network in the cryptocurrency world refers to the underlying blockchain technology that supports the transactions and activities related to a particular cryptocurrency. Think of it like the internet — different websites are built on different servers, just as different tokens or cryptocurrencies are built on different blockchains or networks.
Each network has its own set of rules, protocols, and features. The most famous networks are Bitcoin, Ethereum, Binance Smart Chain (BSC), and Solana, but there are many others like Polygon, Avalanche, and Cardano.
Bitcoin: The first and most well-known cryptocurrency. It's primarily used for peer-to-peer transactions.
Ethereum: A blockchain that allows for the creation of decentralized applications (dApps) and smart contracts. Ethereum also introduced the ERC-20 token standard.
Binance Smart Chain (BSC): Known for its fast transactions and low fees, it’s compatible with Ethereum-based tokens but operates on a different consensus mechanism.
Solana: A high-speed blockchain designed for decentralized applications and smart contracts, often used for NFTs and DeFi.
Polygon: A layer-2 scaling solution for Ethereum that provides faster transactions with lower fees.
BaseChain: A relatively new blockchain built on Ethereum’s ecosystem, allowing Ethereum compatibility with lower fees and faster speeds.
Tokens are the assets that exist on a given blockchain or network. These can represent various things such as currency, assets, or utility within a platform. For example, Ether (ETH) is the native token of the Ethereum network, while Bitcoin (BTC) is the native token of the Bitcoin network.
Tokens can also be non-native, meaning they are created using the technology of an existing blockchain. For example, USDT (Tether) is an ERC-20 token on Ethereum and a BEP-20 token on Binance Smart Chain.
Each network has its own standard for creating tokens. For example:
Ethereum has ERC-20 tokens, which are the most common type of tokens on Ethereum.
Binance Smart Chain (BSC) has BEP-20 tokens, which are compatible with ERC-20 tokens but built for Binance’s network.
Solana uses a different structure entirely, allowing for its native tokens, such as SOL, and other custom tokens built on the Solana blockchain.
If you want to send tokens from one network to another, such as from Ethereum to Binance Smart Chain, you’ll need a special tool or service, like a bridge, that can convert tokens from one blockchain to another. This process involves wrapping the token on one network, then creating a corresponding token on the other network.
Not all tokens can interact with all networks. For example:
ERC-20 tokens (Ethereum-based tokens) can only be used on the Ethereum network or compatible networks like Polygon or Avalanche. Even so, the token needs to be wrapped and bridged to the corresponding network before it becomes available for use. Otherwise, you'll likely be paying a transaction fee to transfer Ether over to a network where you'll still need to wrap the token. Mistakes cost money.
BEP-20 tokens (Binance Smart Chain tokens) are designed to function specifically on Binance Smart Chain and will not work directly on Ethereum unless a bridging service is used.
Wrapping ERC-20 Tokens for Other Networks
When you want to use ERC-20 tokens (Ethereum-based tokens) on other networks like Polygon or BaseChain, you typically need to wrap the token.
Wrapping an ERC-20 token means creating a version of it that is compatible with another network. For example, if you want to use your ETH on Polygon, you would convert your ETH into a wrapped ETH (wETH) that works on Polygon’s network. The process of wrapping locks your tokens on the original network (Ethereum) and issues equivalent wrapped tokens on the target network (Polygon or BaseChain).
Why Wrapping is Needed: Since Polygon and BaseChain use different technology and consensus mechanisms than Ethereum, directly transferring an ERC-20 token like ETH or USDT won’t work without being wrapped first. This wrapping process ensures the token can interact correctly with smart contracts and dApps on the new network.
Token Standards: Check whether the token you're sending is an ERC-20, BEP-20, or another type. This will help determine which network it's compatible with.
Bridges: If you need to move a token between two networks (e.g., from Ethereum to Binance Smart Chain), look for a bridge that supports token swapping or transfer between the networks. For ERC-20 tokens moving to Polygon or BaseChain, you may need to use specific bridges or wrapping services that enable cross-network compatibility.
Each network has its own way of processing transactions, which usually involves transaction fees (also known as gas fees). These fees can vary greatly:
Ethereum: Known for high gas fees during periods of high demand.
Binance Smart Chain (BSC): Offers low transaction fees compared to Ethereum, making it popular for smaller transactions.Solana: Also known for its low fees and high transaction speeds.
Polygon: Offers low fees and fast transactions, especially as an Ethereum Layer-2 solution.BaseChain: Generally has low fees as it aims to offer scalability and lower costs compared to Ethereum.
These fees help maintain the network by compensating miners (or validators) who process and verify transactions.
Networks are blockchains that host cryptocurrencies and tokens. Different networks have different features, rules, and transaction speeds.
Tokens are assets that exist on these networks. Tokens can be native (like ETH on Ethereum) or non-native (like USDT on Ethereum or Binance Smart Chain).
Compatibility matters: Tokens built on one network may not be compatible with others, so always ensure you’re sending tokens on the correct network.
Bridges can help transfer tokens between different networks, but make sure you're using the right tool to avoid mistakes. When sending ERC-20 tokens to networks like Polygon or BaseChain, remember they need to be wrapped to be compatible.
Transaction fees vary across networks, so consider the costs when sending or receiving crypto.
By understanding these basics, you'll be able to navigate the crypto world more confidently and avoid mistakes when making transactions. As you gain more experience, you'll become familiar with the ins and outs of different networks and how to make the most of the tokens you own.
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