NFT or Non-Fungible Token is one of the latest innovations in the field of digital currencies, which have a relatively short lifespan and do not have their own blockchain. Many people are generally familiar with this field, but the most important thing is to know how are NFTs or non-fungible tokens different from fungible tokens? In this article, we want to address this question in a comprehensive way.
Types of tokens in terms of interchangeability
Tokens are produced in different types, each with its own category and different uses, and are divided into two categories: "Fungible tokens" (FT) and "Non-fungible tokens" (NFT).
Fungible tokens or FT
Fungible tokens are assets that can be exchanged; without decreasing their value. Like a $100 bill that is equal to another $100 bill and can therefore be exchanged and moved around. On the other hand, these assets can be shared without reducing their value.
Please note that these tokens follow the ERC-20 standard. This standard is actually a particular set of rules used by tokens created on the Ethereum blockchain network. An important point to consider is that fungible tokens basically have the following characteristics:
- Fungible tokens of the same type can replace each other.
- Similar general rules apply to these tokens.
- These tokens are easily divisible.
Non-Fungible Tokens or NFTs
Non-Fungible Tokens are created in formats such as GIF, JPEG, etc. and use blockchain technology to connect to another unique digital asset.
Non-Fungible Tokens (NFTs) are tokens linked to another unique digital asset using blockchain technology and are not fungible. In fact, non-fungible tokens are unique and non-shareable digital assets. Moreover, these tokens do not have the same value. For example, 2 different paintings never have the same values and cannot be divided into smaller works of art.
On the other hand, non-fungible tokens are produced in formats such as GIF, JPEG, etc. For example, an example of non-exchangeable tokens is the game CryptoKitties, implemented on the blockchain network platform. In this game, each CryptoKitty is a unique token, and the concept that there are no two identical digital cats in this game has made each cat very valuable.
This game is essentially a collecting and breeding game that allows its users to collect cartoon cats on the blockchain platform and sell them on a special platform integrated into the game. This game has become so popular in the blockchain user community that just a few days after its launch, financial transactions made with it reached more than a million dollars, slowing down the Ethereum network.
On the other hand, the main objective of developing this game is to demonstrate the impact and potential application of the blockchain network to improve the level of security and also facilitate the exchange of digital assets in the form of a game. Basically, we can say that Cryptokitiz focuses particularly on payments, and its creators hope that by expanding the vision of its users, they can lead to a more correct understanding of blockchain applications.
Other uses of these tokens include collections, games, digital art, investments and virtual or physical assets, etc.
The Difference Between Fungible and Non-Fungible Tokens
The difference between these two types of tokens lies in their scarcity, divisibility, uniqueness, transferability, and application.
As already mentioned, tokens are manufactured according to a certain standard. The standard for producing non-fungible tokens is now the ERC-721 standard, which is the same standard for tokens created on the Ethereum blockchain network. Similar to the ERC-20 token standard that helped create FT tokens, ERC-721 focuses on designing non-fungible assets. Now, let’s see how these two types of tokens differ from each other.
Being Strange or Strange
The high value of non-fungible tokens is due to their scarcity. Although the developers of these tokens can produce any quantity of these tokens, it is the limitation of these tokens that increases their value. For this reason, producing too many non-fungible tokens would be detrimental to the owners of the artwork.
Divisibility
Among the other differences between fungible and non-fungible tokens, we can mention the notion of divisibility. In fact, non-fungible tokens cannot be divided into smaller units and this feature is exactly the opposite of divisible tokens. For example, you can only buy a complete digital artwork, not a quarter of a digital artwork.
Be unique
This is perhaps the most important difference between NFT and FT tokens. Each of the non-fungible tokens has unique properties that prevent us from merging them. This is despite the fact that this problem does not exist with FT tokens and that in a sense, all of these tokens have the same properties and this problem allows them to be merged.
Transferability
The tokens are transferable. This means that some Ethereum can be transferred from one Digital Volt to another. However, non-tradable tokens are usually bought and sold on special markets and usually do not have this function. This means that tradable and non-tradable tokens fundamentally differ from each other in terms of transferability and transactions.
Applications
The next difference between NFT and FT tokens is their applications. Basically, non-fungible tokens are used in “decentralized applications” (DApps), such as the crypto games we mentioned above as an example of these games.
In addition, non-fungible tokens can be used for passwords, wills, voting rights, tickets and any type of access rights, medical data, software licenses, etc.
In addition, since non-fungible tokens expand the types of digital and real assets, they are also very useful in the concept of investment, and any physical and non-digital object such as artwork, real estate or assets can also be used as securities. in most of these tiles placed.
This is despite the fact that exchangeable tokens cannot be used in these areas due to their divisibility, since in these areas that we mentioned above, the property in question must be unique and cannot be exchanged for another similar property. .
For example, if you borrow an ETH, you will probably spend that ETH and give back to the first person another ETH of the same value. On the other hand, as a loan, you can pay half of the ETH twice and each time.
final word
Non-fungible tokens have unique properties and are considered rare. On the other hand, these tokens currently have their own advantages and disadvantages, and due to these advantages and disadvantages, their applications in the market are limited and users cannot yet fully trust them.
Be careful, the two concepts of fungible and non-fungible tokens have completely different uses and properties and in a way one cannot be considered superior to the other. Rather, each of these concepts should be evaluated and examined within its own framework.
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