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Fungible vs. Non-Fungible Tokens: Difference Explained

Jennifer Alanis -

When we speak about cryptocurrency, we frequently mention such features as fungibility and non-fungibility, fungible and non-fungible tokens. What are they though and which of them bear more value? In the very end, what is better to buy and why?

Replies to these questions are easier than you might believe.

What Are Fungible Tokens: Definition, Examples, Explanation

Fungible tokens are more common to us. We call fungible a token that can be exchanged on an exchange to another token without sacrificing the value of any of them. For example, you can exchange 1 USD for another 1 USD, and you get the same value.

Another characteristic of fungibility is the possibility to divide a token into smaller parts. These parts are also interchangeable without sacrificing their value. So, 1 Bitcoin can be divided into Satoshis, and each Satoshi can be interchanged for another Satoshi on any crypto exchange, such as LetsExchange without sacrificing the value of any of them. Thus, Bitcoin is also a fungible token.

What Are Non-Fungible Tokens: Definition, Examples, Explanation

While fungible tokens surround us constantly and we are more used to them, there is also a different category of tokens — non-fungible ones. As you can guess from the title, such a token cannot be divided into smaller parts, neither it has an analog.

Non-fungible tokens have specific features that distinguish them from fungible tokens:

  • They can be transferred, not traded: you cannot swap, sell or buy non-fungible tokens on an exchange. There are special marketplaces to do so, and the price of each token depends on how unique the token is.
  • They are authentic: every token doesn`t have its replica, it is unique.
  • Ownership rights apply to them.

Usually, we associate such tokens with collectibles, art pieces, and similar. If we speak about non-fungible crypto-tokens, those can be anything, any file: an image, a video, a song, etc.) registered in the blockchain (now, Ethereum blockchain supports the functionality). The blockchain assigns to the file a unique ID and Proof of ownership. These features make a token non-fungible. Such a token cannot be eliminated, modified, duplicated. That`s why they are so expensive.

Even if the main idea behind non-fungible tokens is clear, you might be still confused about how these tokens can be applied in the world of cryptocurrency. To start with, these tokens are not coins but indeed, collectibles, unique items. To make things clearer, we have prepared some examples of non-fungible tokens.

CryptoKitties

CryptoKitties is a virtual game, something like Tamagotchi, but Kitties run on the Ethereum blockchain. The game allows you to breed, sell, buy, and exchange virtual cats.

Each cat is unique, with its unique features and value, and a crypto cat cannot be divided into smaller units. For now, this is one of the most popular non-fungible tokens in the world of crypto.

CryptoPunks

CryptoPunks is an original NFT series. They all are unique characters, each token can be owned by one person only. The proof-of-ownership is stored on the Ethereum blockchain. The series is limited to 10,000 characters which were available for free for all the Ethereum wallet holders. Now, they can be purchased only from a CryptoPunk holder.

Interestingly, CryptoPunks are among the most expensive NFT. For example, in January 2021, one of the tokens was sold for 760,000 USD which is much more than one Bitcoin costs.

NBA Top Shots

NBA Top Shots is a licensed blockchain app powered by the National Basketball Association. Here, basketball fans can buy and sell video clips capturing specific moments in games. Along with clips, some information is provided such as data about a player, game statistics, and similar.

Such video clips are recorded in the blockchain which makes them unique. One cannot get a clip from somewhere else but directly from NBA Top Shots or another user. One clip can cost from 9 up to 999 USD if you get it directly from NBA Top Shots, and other card owners are free to trade them for the amount of money they want.

For now, the most expensive NBA Top Shots token was sold on the 23rd of February for 208,000 USD, and the entire sum from sales equals more than 472 million USD.

The Ethereum Name Service

The Ethereum Name Service, the first NFT, was introduced even before a special standard for NFT was created. ENS was founded in 2017, while the ERC-721 standard was introduced later in 2018.

ENS is a naming system that functions on the Ethereum blockchain. An ENS name can be used to store any kind of profile information such as email addresses, an avatar, and similar. You can use your ENS name to receive tokens, coins, any other blockchain-based items. An ENS name can be bought and used by any person, company, group of people, or it can be used for a specific project.

Do Non-Fungible Tokens Exist Outside of the World of Cryptocurrency?

Outside of the cryptocurrency world, a non-fungible token can be anything unique. For example, a piece of art, a collectible is a non-fungible token. Even a person’s skills or time used for monetization purposes can be regarded as a non-fungible token.

Are NFT Worth Investing?

While an NFT costs a fortune, selling and purchasing them requires some specific knowledge. Many people are interested in NFT without knowing anything about the underlying technology — the blockchain. Without it, we cannot talk about the real value of NFT, their value is rather artificially created. However, we shall also consider that non-fungible tokens are in their infancy stage. Once their full potential is unveiled, they might become the next big thing in the crypto world.

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