Fungible Vs Non-Fungible Tokens

Tanya Sharma
Published on February 16, 2023 12:49 PM

Fungible and Non-fungible tokens are nowadays a hot topic inside the web3 space. People often collects Digital Collectables and some holds Cryptos.

Source: medium

Fungible and non-fungible tokens are two terms that have been growing in popularity in recent years, especially with the rise of blockchain technology.

However, despite their growing prevalence, many people are still unfamiliar with the differences between these two types of tokens.

In this article, we will explore What is Fungible vs Non Fungible tokens and the key differences between fungible and non-fungible tokens, and their use cases in the world of blockchain.

Fungibility Meaning

Fungibility refers to the property of a good or asset that makes it interchangeable with another good or asset of the same type, without any loss of value.

In other words, if two goods are fungible, they can be substituted for each other with no difference in value. The most common examples of fungible goods are currencies, such as the US dollar or Euro, where each unit of currency is interchangeable with another unit of the same value.

Fungibility is an important concept in economics and finance because it allows for the easy transfer of value between individuals and businesses.

When a good or asset is fungible, it can be easily traded and exchanged, making it easier to transact and do business. Fungible assets are also easier to value, as the value of a unit of the asset is determined by the market, and not by its individual characteristics.

Fungibility in Cryptocurrency

In the world of cryptocurrencies, fungibility is an important property that is often used to distinguish different types of digital assets. For example, Bitcoin and Ethereum are considered to be fungible tokens, as each token represents a unit of value that can be exchanged for another unit of the same value.

Other cryptocurrencies, such as non-fungible tokens (NFTs), are unique digital assets that represent ownership of a specific item or piece of content and are not interchangeable with other tokens of the same type.

Fungible Tokens

Fungible tokens are digital assets that represent a unit of value that is interchangeable with another unit of the same value. In other words, if you have two units of a fungible token, they are indistinguishable from one another and are considered to be of equal value.

This property allows fungible tokens to be easily traded and exchanged, making them ideal for use as a currency or store of value.

One of the most well-known examples of a fungible token is a cryptocurrency, such as Bitcoin or Ethereum. In the case of Bitcoin, each token represents a unit of the currency and can be exchanged for another unit of the same value.

This makes Bitcoin a fungible token, as each token is interchangeable with another token of the same value.

Another example of a fungible token is a stablecoin, which is a type of cryptocurrency that is pegged to a fiat currency, such as the US dollar, or to a basket of assets.

This allows stablecoins to maintain a stable value, making them ideal for use as a store of value or a means of exchange.

Non-Fungible Tokens

Non-fungible tokens (NFTs) are unique digital assets that represent ownership of a specific item or piece of content. Unlike fungible tokens, which are interchangeable and have the same value, NFTs are unique and have distinct, individual characteristics that give them value.

This makes NFTs non-interchangeable, meaning that they cannot be easily substituted or exchanged with another token of the same type.

One of the most well-known examples of an NFT is a digital collectable, such as a rare virtual trading card or a digital art piece. These NFTs are unique and have their own individual attributes, such as a specific design or rarity, that give them value and make them unique from other tokens of the same type.

NFTs are stored on a blockchain, which allows for secure and verifiable ownership of the token. This makes NFTs ideal for use in the digital art and collectable market, as well as for a variety of other applications, such as gaming, virtual real estate, and more.

Fact: Merge, a digital artist's creation, sold for $91.8 million on the NFT platform Nifty Gateway in December 2021. The National Gallery of Art set a new record for the most expensive painting sold by a living artist.

Fungible and Non-Fungible Tokens: Differences

The primary difference between fungible and non-fungible tokens lies in their nature and use case. Fungible tokens are digital assets that represent a unit of value that is interchangeable with another unit of the same value.

They are often used as a means of exchange or as a store of value, such as cryptocurrencies, stablecoins, and other similar digital assets. Because fungible tokens are interchangeable and have the same value, they can be easily traded and exchanged, making them ideal for use as a currency or store of value.

On the other hand, non-fungible tokens (NFTs) are unique digital assets that represent ownership of a specific item or piece of content. Unlike fungible tokens, NFTs have distinct, individual characteristics that give them value and make them non-interchangeable.

This means that they cannot be easily substituted or exchanged with another token of the same type. NFTs are commonly used to represent ownership of digital art, collectables, virtual real estate, and other similar digital assets.

Factors	Fungible Tokens	Non-Fungible Tokens
Terminology	The property of fungibility is that of a commodity whose component units are fundamentally interchangeable.	Non-fungibility is the property of an asset's uniqueness.
Property	Fungible tokens are assets that are not divisible and can be easily swapped for another asset of the same kind.	Non-fungible tokens (NFTs) are data units stored on the blockchain that ensure the uniqueness of digital assets.
Distinction	Fungible tokens are homogenous and lack the distinctive value proposition of NFTs.	NFTs have a distinct value proposition, and each token has a distinct ID.
Standard	Fungible tokens are created on the Ethereum blockchain using the ERC2O standard.	To represent its tokens, NFTs employ the ERC721 standard.

NFT and Fungible Tokens: Applications

Fungible tokens and non-fungible tokens each have their own unique applications and use cases, making them valuable in different ways.

Fungible tokens, such as cryptocurrencies and stablecoins, are primarily used as a means of exchange or store of value. They are easily traded and exchanged, making them ideal for use as a currency, as a means of payment, and as a store of value. For example, cryptocurrencies like Bitcoin, Ethereum, and others are used for peer-to-peer transactions, as well as for buying goods and services online and offline.

On the other hand, non-fungible tokens (NFTs) have a wide range of applications, from representing ownership of digital art and collectables to virtual real estate, gaming, and more. NFTs are used to represent unique digital assets that have their own distinct characteristics, rarity, and value.

Below is some wide spectrum applications of NFTs:

Digital Art & Collectibles: NFTs are used to represent ownership of unique digital works of art, trading cards, and other similar assets. This allows artists and collectors to sell and trade digital assets in a secure and verifiable manner.

Gaming: NFTs are used to represent unique digital assets like rare in-game items, weapons, and collectables. This allows players to trade and exchange rare items and assets, adding another layer of value and interactivity to the gaming experience.

Virtual Real Estate: NFTs have been used to represent ownership of virtual real estate in virtual worlds and online games, allowing players and investors to own and trade virtual land and properties.

Ticketing & Event Management: NFTs have been used to represent tickets to events, concerts, and other similar activities. This allows for a secure and verifiable ticketing system, reducing the risk of fraud and counterfeiting.

Fashion: NFTs have been used to represent ownership of unique digital fashion items, such as virtual sneakers and other similar products.

Virtual Reality: NFTs are being used to represent unique digital assets in virtual reality and augmented reality experiences, such as virtual real estate and collectable items.

Others: NFTs have been used for a variety of other applications, including music, sports, and more. As the use of NFTs continues to grow and evolve, it is likely that new and innovative applications and use cases will emerge in the years to come.

Difference Between Cryptocurrency and Tokens

Cryptocurrency and tokens are often used interchangeably, but they are distinct concepts with different properties and characteristics.

Cryptocurrency refers to a digital or virtual currency that uses cryptography to secure and verify transactions, as well as to control the creation of new units. Bitcoin, the first and most well-known cryptocurrency, was created in 2009 and has since been followed by thousands of other cryptocurrencies.

Tokens, on the other hand, are digital assets that are built on top of a blockchain, and they serve as a representation of a particular asset or utility.

Tokens can be either fungible or non-fungible, with fungible tokens representing equal units of value, such as cryptocurrencies, and non-fungible tokens representing unique and indivisible assets, such as collectables, virtual real estate, and more.

One of the key differences between cryptocurrencies and tokens is that cryptocurrencies have their own blockchain, while tokens are built on existing blockchains, such as Ethereum, Binance Smart Chain, and others.

This means that cryptocurrencies have their own set of rules, consensus mechanisms, and security measures, while tokens rely on the underlying blockchain for these features.

Pros and Cons of Fungible and Non-Fungible Tokens

Fungible and Non-Fungible Tokens (NFTs) are two types of tokens that exist on a blockchain network and serve different purposes. Here are some pros and cons of each:

Fungible Tokens (FTs): Pros

Interchangeable: All units of the same fungible token are equal and interchangeable, meaning they have the same value. This makes it easy to transfer, trade and use these tokens as a medium of exchange.

Efficient: Fungible tokens are easy to manage and store because they are identical, making it easier to automate processes such as transactions and settlements.

Liquid: Fungible tokens are usually highly liquid, meaning that they can be easily bought and sold on different markets, allowing for easy price discovery and a highly liquid market.

Fungible Tokens (FTs): Cons

Lack of uniqueness: Since all units of the same fungible token are identical, there is no inherent unique value that makes one token stand out from the others.

Lack of scarcity: Because they are interchangeable, the creation of new units can easily increase the overall supply, potentially leading to price dilution and decreased scarcity.

Non-Fungible Tokens (NFTs): Pros

Unique: Each NFT is unique and serves as a digital representation of an asset or piece of content. This allows for the creation of scarcity and uniqueness, which can drive value and interest.

Verifiable ownership: NFTs are stored on a blockchain network, providing a verifiable and permanent record of ownership and transfer.

Versatile: NFTs can be used to represent a wide range of assets, including digital art, collectables, real estate, and more.

Non-Fungible Tokens (NFTs): Cons

Lack of standardization: There is no standard for NFTs, which can lead to confusion and complexity in terms of how they are created, stored, and traded.

Lack of interoperability: NFTs are unique and specific to the platform or network they were created on, making it difficult to transfer them between different platforms.

Scalability: Because NFTs are unique and stored on a blockchain, the large size of some NFTs can cause storage and performance issues for the underlying blockchain network.

Where to Buy Non-fungible Tokens?

Non-fungible Tokens (NFTs) can be bought and sold on various online NFTs marketplaces and platforms, both centralized and decentralized. Some of the most popular places to buy and sell NFTs include

OpenSea: OpenSea is one of the largest and most popular NFT marketplaces, offering a wide range of unique digital assets, including art, collectables, virtual real estate, and more.
Rarible: Rarible is a decentralized NFT marketplace that allows anyone to create, sell, and trade their own unique digital assets, as well as to discover and buy existing NFTs.
SuperRare: SuperRare is a curated NFT marketplace focused on high-quality digital art, offering a carefully selected range of unique and valuable digital assets.
Nifty Gateway: Nifty Gateway is a popular NFT marketplace that specializes in limited-edition drops and collaborations with celebrities, musicians, and other high-profile figures.
Christie's: Christie's, one of the world's largest auction houses, has started offering NFT sales, offering a range of unique and valuable digital assets, including digital art and collectibles.
NBA Top Shot: NBA Top Shot is a popular NFT marketplace focused on the world of sports, offering a range of digital collectibles and assets related to basketball and the NBA.

Binance NFT Marketplace: Binance, one of the largest cryptocurrency exchanges, has launched its own NFT marketplace, offering a range of unique digital assets, including art, collectibles, and more.

These are just a few of the many places to buy and sell NFTs.

Conclusion

In conclusion, fungible and non-fungible tokens are two distinct types of digital assets with different use cases and characteristics. Fungible tokens are primarily used as a means of exchange and store of value, while NFTs are used to represent ownership of unique digital items.

With the rise of blockchain technology, it is likely that both fungible and non-fungible tokens will continue to play an increasingly important role in the digital world, offering new and exciting opportunities for individuals, businesses, and the wider economy.

FAQs

Is Bitcoin fungible or non-fungible?

Fungible cryptocurrencies include all cryptocurrencies having transparent pricing on exchanges and coin price aggregator sites. Large-cap cryptos such as Bitcoin, Ethereum, and Dogecoin are examples. A cryptocurrency is a fungible asset if its market value is easily determined.

What is the difference between fungible and non-fungible tokens?

The main difference between fungible and non-fungible tokens is their nature of being interchangeable or unique. Fungible tokens represent equal units of value, such as cryptocurrencies, and are interchangeable, while NFTs represent unique and indivisible assets and are not interchangeable.

What are some common use cases for NFTs?

NFTs have a wide range of use cases, including digital art and collectables, virtual real estate, gaming, identity, and more. NFTs can be used to represent ownership of unique digital assets and to provide access to certain services or products.

Can NFTs be used as a means of exchange or store of value?

While NFTs can be bought and sold, they are not typically used as a means of exchange or store of value, as they represent unique and indivisible assets. Cryptocurrencies, on the other hand, are often used as a means of exchange and store of value.

How do I buy NFTs?

NFTs can be bought and sold on various online marketplaces and platforms, both centralized and decentralized. Some of the most popular places to buy and sell NFTs include OpenSea, Rarible, SuperRare, Nifty Gateway, Christie's, and Binance NFT Marketplace. Before buying NFTs, it is important to research the platform and the specific NFTs you are interested in, as well as to understand the risks and potential rewards of investing in NFTs.