Did you know that Cardano does not use smart contracts to interact with tokens and NFTs? The network treats them the same way it treats ADA coins. For Cardano, tokens and NFTs are native assets. This reduces complexity and transaction fees while increasing security. What are the benefits of Cardano for token issuers? TLDR Ethereum uses smart contracts to interact with tokens. For Cardano, tokens and NFTs are native assets. Assets are identified by policy ID and name. The beginnings of tokenisation Ethereum is the first platform that people have widely adopted for issuing tokens on the blockchain. When people want to mint fungible tokens on Ethereum, they use the ERC-20 standard. For NFTs, they use the ERC-721 or ERC-1155 standard. These standards are essentially smart contracts. Smart contracts define a common list of rules that Ethereum tokens should adhere to. Minting is usually done in a copy-paste manner. Users need to fill in the data and mint tokens. A customized and deployed smart contract is then used each time tokens move from address to address. As can be expected, there is a higher fee for using a smart contract than for sending a regular transaction. Interacting with tokens on the first layer of Ethereum can be relatively expensive. Tokens represent value and are used for such purposes as payments, value transfers, exchange, rewards or incentives, access to services and products, represent voting rights, etc. Tokens can hold both utility and security features, which opens a range of possible use cases for businesses, applications, and enterprises. Interaction with tokens should be fast, cheap, and as secure as possible. These user-friendly features are difficult to achieve on Ethereum, as the entire mechanism is built on smart contracts. The interaction with tokens has moved to a few second layers and sidechains. This may pose additional risks and complications for users. The transfer of tokens from Ethereum to sidechains may take place over bridges that may be vulnerable. It may be difficult for users to understand how to make the transfer. The sidechains have different security properties. Most major second layers and sidechains have been hacked in the past. For some use cases, it is required that tokens are always on the first layer, which is considered the most secure and decentralized. Second layers and sidechains are definitely the way to go, but so far their future is uncertain and they have not passed the test of time. For Cardano, tokens and NFTs are native assets Cardano employs a so-called multi-asset ledger. Meaning tokens and NFTs are stored directly in the ledger similar to ADA coins. Cardano has an accounting infrastructure for assets defined in the ledger model and can transfer tokens and NFTs natively. It is easy to track the ownership of assets or to audit them. Once the tokens are minted, Cardano does not need any smart contract to interact with the tokens. All the logic for transmission, transaction fee calculation, etc. happens at the protocol level, similar to sending ADA coins. This has many advantages. Transaction fees are lower. Transfers of assets are more secure than if the platform has to use a smart contract. Transferring logic cannot be customized as it is part of the protocol. All tokens are transferred in the same way. There is no unexpected behavior. It is not possible that the issuer of tokens accidentally introduced a bug. Users can send each other assets simply just like ADA coins. The fee for a transaction containing tokens or NFTs can only be paid in ADA. Users need to create a regular transaction in which they insert tokens and the ADA fee. Every Cardano wallet is capable to do that. Cardano has a fixed fee policy, which means that the fees depend on the size of the transaction. The fee is not dependent on the current network load. For a regular transaction, you'll pay the same ADA fee today as you will in a year. Fees are predictable. Cardano allows users to insert multiple tokens and/or NFTs into a single transaction. It is even possible to send them to multiple recipients. This feature is commonly used by applications. Transactions with multiple assets are cheaper than sending them individually. It is common to find hundreds of user requests in a single transaction. Notice that Ethereum can't do this because tokens are always tied to a customized smart contract that knows nothing about other smart contracts. The handling of assets is not tied to any particular smart contract in the Cardano ecosystem. Thus, anybody can create an application that will interact with assets or even multiple assets. This opens the door for many possibilities to use assets in the future. A smart contract that is tied to an asset could be a barrier to ease of use. From the perspective of ordinary users, the differences between Cardano and Ethereum are not visible at first glance, but the practical advantages are obvious. On Cardano, assets are simple to use, they are stored directly in the ledger, fees are lower and predictable, and usage is more flexible. Minting on Cardano No smart contract is needed to mint tokens on Cardano. Issuers must define a minting policy (monetary script) and sign a specially created mint transaction. There is not much of a distinction between regular tokens and NFTs. Both types are basically the same thing. Both can be produced using the Cardano node command line and both are native assets. Assets need to be uniquely associated with a policy. The policy is identified by policy ID (a string of characters). The policy defines the name of the asset, who can mint and possibly burn it (a signature key is needed), and the time constraint for interaction with it. The amount of assets to be minted is defined in the transaction and not in the policy. The rules might specify who (what private key owner) has control over the asset supply through minting and burning. Adherence to minting policies is checked by the node at the time a transaction is processed. All relevant signatures are checked during minting or burning. Issuers can burn all existing tokens and mint new ones, with a new minting policy. It requires owning the assets (having them on their own addresses). It is not possible to burn assets that are owned by users. Note that this is a feature, not a bug. Assets are specified by policy ID and name. The combination of these two data can be considered a unique identifier in the Cardano ecosystem. Notice that asset names might not be unique and can be easily duplicated. Only assets that are minted under the same policy are fungible. That is why you always need to know the policy ID and then be interested in the name of the asset. Policy IDs are always unique and attached permanently to assets. Cardano will not allow anyone to change the policy for an existing asset or decouple the policy from the asset. The issuers usually publish the policy ID under which the assets were minted so that anyone can easily distinguish duplicate or fake assets from the original ones. It is possible to trace all assets minted within the policy. In the case of NFTs, one policy can be used for minting more NFTs. The same policy is used multiple times in a row to mint one unique piece of NFT. When creating a mint transaction, it is possible to attach metadata in addition to the policy ID. This is used to create NFTs. Metadata is generally used to embed information that is associated with assets. In the case of NFT, they help to display things like image URIs, collection names, specific properties, rarity, and other things. Metadata can include information such as addresses, personal information, license plates, land registry data, or anything else you can think of. Thanks to attaching metadata to NFT, third-party platforms like Cexplorer or marketplaces can easily look up information about NFT and display the image for you. NFT collectors should search the official NFT collection website or discord in order to find the policy ID. When they buy NFTs, they should make sure that they buy the original through the verification of the policy ID. We owe you an explanation of how to make sure that there is no possibility of burning existing NFTs or minting more of them by the issuer. This means that the issuer cannot burn or mint another NFT under the same policy. It is possible to define a date when the policy will be locked. For example, issuers can specify the number of slots after which burning and minting will not be possible. Collectors can see the policy details in the blockchain explorers. They just need to know the Policy ID and use that to find details. If the policy expires, the NFT cannot be burned and will exist forever. No other NFT will be minted under the same policy. Conclusion Cardano works with assets natively, which is just as secure as sending ADA coins. It is easy to audit tokens and trace the rules under which the tokens were minted. If it is necessary to build application logic over tokens, anyone can do it without restriction just as easily as they would for ADA. Interacting with tokens is cheap, fast, secure, and easy. If you don't like the command line, there are many tools to help you issue your own tokens by entering information into a web form.
