What Is Shiba Inu Coin (SHIB) and How Does It Work?

What Is Shiba Inu (SHIB)?

Shiba Inu (SHIB) is one of the best-known memecoins in the crypto market. The cryptocurrency was launched in 2020 as an experiment in decentralized communities.

SHIB uses the ERC-20 standard. That is a widely used set of rules for tokens on Ethereum. So Shiba Inu is not an independent blockchain with its own block producers, but a token that runs on the Ethereum network.

The token was created in August 2020 as an experiment in a decentralized community and is themed around the Shiba Inu dog breed. Within the broader Shiba ecosystem, there are also BONE, LEASH, and TREAT. These are other tokens, each with its own role, so SHIB is not the same as, for example, BONE.

With SHIB, you can send tokens on Ethereum. You can also give another party permission to spend a certain number of tokens on your behalf. That kind of permission is called an allowance. In addition, the token contract has a function that lets holders burn their own SHIB, meaning destroy it.

Key Takeaways

• SHIB is an ERC-20 token on Ethereum, not an independent blockchain.
• For SHIB transactions on Ethereum, you need ETH to pay network fees.
• Through a bridge, SHIB can also be used as a 1-to-1 representation on Shibarium.
• BONE, not SHIB, is Shibarium's gas, staking, and governance token.
• A contract-based burn lowers the total supply recorded by the SHIB token contract.

How Does Shiba Inu Coin Work?

SHIB's operation is set in a smart contract on Ethereum. A smart contract is code on the blockchain that automatically carries out preset rules. For SHIB, that code tracks things like how many tokens each address has, which tokens are sent, and which allowances have been granted. So Shiba Inu does not have its own blockchain and is mainly traded through Ethereum.

Say you send SHIB to someone. The token contract then changes the balance of your address and the recipient's address. Because the transaction is processed on Ethereum, you need ETH to pay the Ethereum network fee. So you do not pay that fee directly in SHIB.

SHIB can also be moved to Shibarium through a bridge. A bridge is a connection between two networks. In that process, SHIB is not just created twice. When moving from Ethereum to Shibarium, an equivalent amount of SHIB is minted on Shibarium, meaning created as a representation of the tokens. If you move back to Ethereum, that Shibarium version is burned and the same amount of SHIB is released again on Ethereum.

That works 1-to-1: the bridged SHIB on Shibarium is not an extra permanent issuance. It is a representation of the SHIB that is moved between the two networks through the bridge.

SHIB can also be used in liquidity pools and for token swaps on ShibaSwap. In a liquidity pool, you add tokens so others can swap. There are risks involved, such as smart contract risk and impermanent loss. With impermanent loss, the value of the tokens you put into the pool can turn out differently than if you had just held them.

Shiba Inu Coin Overview

How Does the SHIB Token Burn Work?

A token burn means tokens are permanently destroyed. Over the long term, this creates more scarcity, and for many investors that is a positive development. The SHIB token contract has a public burn function for this. A holder can use it to burn their own SHIB. The tokens then disappear from that holder's balance, and the token contract's totalSupply also goes down. That totalSupply is the total amount of tokens the contract records.

It's important not to confuse a burn with sending tokens to a dead address. A dead address is an address whose tokens generally can no longer be spent. Those tokens are then practically unusable, but technically that is different from calling the burn function. Only that contract-based burn directly lowers the totalSupply reported by the contract.

During the original distribution, Vitalik Buterin received a large share of the SHIB supply. In May 2021, he sent about 410 trillion SHIB to a dead address. So that was not a technical burn through the token contract's burn function.

The word burn can also come up in bridging, but it serves a different purpose there. If bridged SHIB moves back from Shibarium to Ethereum, the Shibarium version is burned. After that, the corresponding amount is released on Ethereum. As a result, the total amount of SHIB across both networks does not change.

A normal Shibarium transaction does not automatically lead to a SHIB burn. That's because the gas fees on Shibarium are paid in BONE.

What Is Shibarium?

Shibarium is an EVM-compatible network positioned as an Ethereum Layer 2. EVM-compatible means the network can work with Ethereum-like smart contracts and tooling. On mainnet, Shibarium uses chain ID 109.

The setup consists of multiple layers. Ethereum is used for things like staking and checkpoints. A checkpoint is a recorded confirmation of data on Ethereum. The Heimdall layer handles validation and checkpoints, while the Bor layer produces blocks and executes EVM transactions and smart contracts.

Validators and delegators play a role here. Validators help validate the network, while delegators can stake BONE with validators. Staking here means locking up BONE to take part in Proof-of-Stake consensus. Consensus is the way participants agree on which transactions and blocks are valid.

Heimdall validators collect transactions and send checkpoints to Ethereum. Bor nodes then create blocks and execute transactions. So Shibarium has its own validator and block producer layer that periodically sends checkpoints to Ethereum. That design is therefore not the same as a rollup that settles all transaction data and execution directly on Ethereum.

For SHIB, this is the main thing to know: you can use SHIB on Shibarium through the bridge, but SHIB is not the native coin of this network. BONE is the token for gas fees, staking, and governance on Shibarium.

How Did Shiba Inu Coin Start?

Shiba Inu was launched in August 2020 by an anonymous creator or group under the pseudonym Ryoshi. Ryoshi described SHIB as an experiment in a decentralized organization supported by the community.

The real identity behind Ryoshi cannot be publicly verified. Because of that, there is also no complete list of real founders. So it is not clear whether Ryoshi was one person or a group.

During the original distribution, part of the supply was placed in a Uniswap liquidity pool. A large portion was also sent to Vitalik Buterin's Ethereum address. That was not a burn: at that point, he effectively had control over those tokens.

In May 2021, Buterin donated more than 50 trillion SHIB to the India COVID-Crypto Relief Fund. Later that month, he sent about 410 trillion SHIB to a dead address.

What Are the Benefits of Shiba Inu Coin?

One important practical point is that SHIB uses the ERC-20 standard. That means the token can work with Ethereum wallets, decentralized exchanges, and smart contracts that support ERC-20. That does not automatically mean every wallet or service already supports SHIB, but the standard is widely used within Ethereum.

Also, SHIB can be used both on Ethereum and through a 1-to-1 bridge on Shibarium. That gives users the option to move the token between those two networks.

Shibarium is EVM-compatible. For developers, that means they can use Ethereum-like smart contracts and tooling. The network also uses a Proof-of-Stake architecture with validators, delegators, and periodic checkpoints to Ethereum.

SHIB can also be used in ShibaSwap liquidity pools and for token swaps within that protocol. That makes certain forms of on-chain token swapping and liquidity possible, although there are risks involved.

What Are the Downsides of Shiba Inu Coin?

SHIB is not the token used to validate Shibarium or pay network fees. For gas fees and participation in Proof-of-Stake on Shibarium, you need BONE. For a direct SHIB transaction on Ethereum, you also need ETH to pay the network fee.

Bridging between Ethereum and Shibarium adds extra steps and risks. You use bridge contracts, validators, and a processing path that can take time. If a checkpoint needs to be processed, bridge processing normally takes about 45 minutes to 1.5 hours. In practice, this can vary depending on network conditions or validators.

Ryoshi's identity and the full original organization cannot be publicly verified. For some users, that is an important point, because it leaves less clarity about who originally set up the project.

The original distribution gave one external address, Vitalik Buterin's, temporary control over a large part of the supply. This does not say anything about what the token distribution looks like now: the relevant tokens were mostly sent to a dead address and partly donated in May 2021.

Finally, providing liquidity on ShibaSwap comes with risks. In addition to smart contract risk, you can face price impact and impermanent loss.

Conclusion

Shiba Inu (SHIB) is an ERC-20 token on Ethereum that was created in August 2020 as an experiment in a decentralized community. It is not an independent blockchain and it is not the native coin of Shibarium.

The basics are pretty simple: the SHIB smart contract records balances, transfers, and allowances on Ethereum. Anyone sending SHIB directly on Ethereum needs ETH to pay the network fee. Through a 1-to-1 bridge, SHIB can also be used on Shibarium.

Shibarium has its own Proof-of-Stake architecture with validators, delegators, block producers, and checkpoints to Ethereum. BONE fills the roles for gas, staking, and governance there, not SHIB.

One important nuance is the token burn. A burn through the function in the SHIB token contract lowers the recorded total supply. A transfer to a dead address usually makes tokens unusable, but technically it is something different. Together, these parts show that SHIB is mainly an Ethereum token within a broader ecosystem with multiple tokens and its own network layer.