Fungible vs non-fungible tokens
Here are the main differences:
If you look around the world of cryptocurrencies, you will immediately come across two terms: Non-fungible and Fungible Tokens. But what exactly are they? Let's take a closer look at these revolutionary technologies and what distinguishes them from each other.
Especially in recent years, fungible and non-fungible tokens have gained public attention. They turned out to be both an attractive investment opportunity and a revolutionary technology for blockchain enthusiasts, companies and investors.
However, price fluctuations often clouded the true possibilities of these technologies, as they hold the potential to influence and upend the world's biggest industries. But why exactly is that?
Let's take a step back to find out. In this article, we'll take a closer look at the basics, differences and potential of fungible and non-fungible tokens so you can make informed decisions in the crypto world.
To determine token distribution, demand, and market capitalization, all cryptocurrency supply metrics must be considered. They have the ability to influence the price of a cryptocurrency and are essential criteria for investors looking to assess the worth of a project.
Unlike fiat currencies, which can be printed at will by central banks, most cryptocurrency tokens have a fixed supply that cannot be increased or decreased at will. The supply of a token can be released all at once, but most cryptocurrencies, such as proof-of-work (PoW) coins, or proof-of-stake (PoS) coins, are mined or minted over time.
The technology of fungible tokens (sometimes colloquially called coins) has been around since Bitcoin was born in 2009. However, the pioneers among the non-fungible projects only started 5 years later, in 2014, on the Ethereum blockchain.
Both forms of tokens are now central concepts in the crypto industry and serve (at least in part and for many investors) as investment vehicles in a crypto project or as shares in a company. However, even though they are of the highest interest to investors, they often provide holders with benefits that far exceed those of shares and other traditional store of value.
This is because they promise investors not only profit growth and returns, but many other benefits that can only be realised through blockchain technology. Whether non-fungible or fungible, a large proportion of crypto projects thrive on precisely these advantages, which benefit the community and the holders.
Crypto projects are very creative in this respect. Among other things, they want to give investors and holders voting rights for government decisions, access to an exclusive community, airdrops, returns through staking, access to apps and other benefits. How exactly is this actually possible?
Both fungible and non-fungible tokens exist as so-called smart contracts on the blockchain. These smart contracts can be thought of as computer programs (code) that are called up under certain conditions and fulfil predetermined functions.
The immutability and transparency of the blockchain is elementary here and contributes to the revolutionary use cases of tokens. Even though Bitcoin is considered a fungible token in a broader sense, the technology of fungible and also non-fungible tokens was first brought to life on the Ethereum blockchain. Meanwhile, every advanced blockchain, such as the Binance Smart Chain, has similar technologies.
In the case of the Ethereum blockchain, this looks like this: The smart contract technology behind Fungible Token is called ERC20. The newer technology for the non-exchangeable counterpart is called ERC721. In the case of the Binance Smart Chain, they are called BEP20 and BEP721. These are so-called token standards.
The difference between fungible and non-fungible tokens
Fungible tokens generally represent cryptocurrencies. They are an excellent means of payment that has many advantages over fiat currencies. These advantages include instant and cost-efficient transactions, a simple and globally accessible financial system, and transparency and traceability through blockchain technology.
The name already reveals the decisive characteristic of the tokens. Fungible means something like "exchangeable". But what does that mean exactly? Let's take a look at an example to clarify this:
There are 3 BNB on your Binance account and a family member sends you 2 more BNB on this account. There are now a total of 5 BNB in your virtual wallet. It is no longer possible to tell which BNB came from whom. They are interchangeable and indistinguishable from each other.
Besides cryptocurrencies and tokens, securities, foreign exchange or fiat are other good examples of other exchangeable (or fungible) items.
While fungible tokens such as Bitcoin or BNB are fantastic as a means of payment, the strengths of non-fungible tokens can be seen in other areas. Non-fungible means "not exchangeable". This directly reveals their main feature.
This is because each NFT exists only once and can therefore be assigned to exactly one owner. This new form of digital asset is therefore best understood as a digital proof of ownership on the blockchain.
Example: You have an NFT X in your wallet. If you receive another NFT of this collection, you can find out exactly which one it is by looking at the blockchain. They can be identified (among other things) by their so-called token ID, which you can view on well-known block explorers such as Etherscan.
The imagination knows no bounds here, because NFTs can be used as proofs of ownership for the most diverse objects. For this very reason, they carry the potential to penetrate many industries around the world. Well-known use cases include:
- Digital art and music,
- Real estate on the blockchain,
- access to exclusive communities,
- game items and toys,
- tickets to events,
- subscription services,
- and much more.
Especially for beginners, the crypto market is confusing and confounding, even downright dangerous. But anyone who wants to be successful in the crypto market must be very familiar with the subject matter. Only then is it possible to make sound decisions.
That's why I offer 1:1 courses in my Crypto Academy for beginners and advanced participants or even companies, so that the probability of losing money due to a wrong decision is reduced by gaining knowledge.
Send me an email and we will arrange an appointment for a free initial meeting, in which we will compare your level of knowledge with my course content.
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