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The Difference Between Fungible And Non-Fungible Tokens

The Difference Between Fungible And Non-Fungible Tokens

The Difference Between Fungible And Non-Fungible Tokens blog will help you in distinguishing what is Fungible and Non-Fungible Tokens, illustrating their pros and cons. 

What Are Crypto Tokens?

The Crypto token can hold price, stakes, voting rights, or anything. Crypto token is not restricted only to a certain role and could address various roles in its crypto token native ecosystem. A Crypto token could represent a certain utility or an asset of a company. The company can give the tokens to investors in a public sale.

Significance of Tokens

So, what is the role of a crypto token? 

A significant aspect or factor in understanding the fungible token vs non-fungible tokens debate clearly. 

  • A crypto token is not restricted to a certain role and could address a wide range of functionalities within its native ecosystem. The functionalities can include the below following,

  • Crypto Tokens can serve as gateways to blockchain apps, and crypto users require tokens for accessing the decentralized applications.

  • Crypto Tokens could also significant qualification of crypto individuals for containing specific cryptocurrency voting rights. 

  • Crypto Tokens can also perform as suitable entities for enriching the user experience of cryptocurrency users or holders. 

  • Mainly, the applications of tokens as currency also serve the main role in decoding the difference between fungible tokens & non-fungible tokens.

  • As a matter of fact, cryptocurrency tokens have been traditionally used for value crypto exchange in the blockchain-based ecosystem. 

  • So, cryptocurrency tokens could help in creating an internal economic system in an application.

  • It is very important to reflect on the crypt token applications as a significant indicator of ownership of a unique entity. 

  • Crypto Tokens can represent ownership of something unique for a certain crypto trader, and this application sets the foundation for the fungible tokens vs non-fungible tokens debate.

What are Fungible and Non-Fungible Tokens

As we have already known about what are tokens, let’s deep to explore both types of tokens.

Fungible Tokens 

Due to security, decentralization, immutability, Blockchain is considered to be the best technology for maintaining all types of digital currencies. But with such interchangeable cryptocurrency tokens, this process would not be possible at all times. Such crypto tokens work fine for digital currencies, actually, here fungibility is the fundamental feature of any cryptocurrency.

Such cryptocurrency tokens are built in such a perfect way that each fraction of a cryptocurrency token is equivalent to the next step. For example, Bitcoin is a fungible currency, which means one Bitcoin is equal to one Bitcoin (crypto), and at the same time, it’s equal to all other Bitcoins. Such cryptocurrency tokens are assumed to be interchangeable tokens and divisible tokens too. 

Fungible Tokens Use ERC-20

ERC-20 is the specific set of rules and regulations, and ERC refers to Ethereum Request for Comment. The foundations of ERC-20 token rely on elements such as allowance, balanceOf, totalSupply, approve, transfer & transferFrom. These kinds of elements are the mandatory regulations and functions for ERC-20 cryptocurrency tokens.

In simply, the above said types of cryptographic tokens are basically uniform and that token can be interchanged with other fungible tokens of the same type without any problems. Such kind of crypto tokens relate to the things we use each and every day, and it simply applies to real-world data as well as digital currencies.

  • Fungible tokens of the same type can token replace one crypto token.

  • Similar underlying rules and regulations serve the governance of fungible tokens.

  • Fungible tokens are easily and quickly divisible, and cryptocurrency users can use smaller fractions to pay back a larger price.

Non-Fungible Tokens (NFTs)

Non-Fungible Tokens (NFTs) are special tokens.

Non-Fungible Tokens represent unique, collectible items. 

Non-Fungible Tokens are unique in the sense that they cannot be split/changed for other NFT tokens of the same type. 

You can consider Non-Fungible Tokens as tokens with no fungibility that provide a variety of unique business opportunities for using the latest blockchain technology.  

For example Crypto Kitties, collectible tokens.

Every CryptoKitty is unique, At the same time, there is no two CryptoKitties are the same; 

These are impossible to break a CryptoKitty into bit pieces, exchange them, and again activate them to launch an equally same valuable CryptoKitty, unlike fungible assets like Bitcoin (popular cryptocurrency).

Non-Fungible Tokens Use ERC-721

However, the major limitations of ERC-20 token present notable some conflicts, thereby leading to the development of ERC-721 token standard here. The ERC-721 token standard could benefit in developing non-fungible tokens (NFTs). 

Interestingly, the ERC-721 token standard is similar to ERC20 standard in terms of functionality from various significant aspects.

Fungible Vs. Non-Fungible Tokens 

Now, as we have understood what the 2 types of cryptocurrency tokens are, let’s understand the fundamental differences between the 2 types. 

Fungible are Interchangeable. 

As we already mentioned above, such cryptocurrency tokens are interchangeable and tokens can be exchanged with any other cryptocurrency token of the equivalent kind. 

For instance, fiat currencies are fungible ones. 

For another instance, $50 notes are interchangeable with other $50 notes. 

Similarly, one Bitcoin value can be exchanged with other Bitcoin (Top Popular Cryptocurrency), which creates no difference for cryptocurrency holders.

Non-Fungible are Non-Interchangeable - Unlike Fungible tokens, such crypto tokens are non-interchangeable as they cannot be replaced with the non-fungible token (NFT) of the same type.

Fungible Tokens are Divisible - These cryptocurrency tokens can be divisible into smaller units, and one token can get any number of units, and it does not matter to cryptocurrency holders as long as the value remains the same.

Non-Fungible Tokens are Non-Divisible - These cryptocurrency tokens cannot be divided in any sense.  

Fungible Tokens are Uniform - Each cryptocurrency token is various from all other crypto tokens of the same type. 

Non-Fungible Ones are Unique - All cryptocurrency tokens of each type are identical in specification crypto tokens & each token is identical to the other token. 

Major Use Cases of Non-Fungible Tokens 

Crypto kitties were the 1st use case of NFTs - Non-Fungible Tokens. 

But the invention of such cryptocurrency tokens has taken the world of Blockchain by storm. 

NFTs have numerous use cases across different domains. Just like crypto kitties, such cryptocurrency tokens can be used to develop entirely new types of collectibles. Not only this type, but these tokens also have their application areas in Know Your Customer(KYC) procedures, loyalty programs, art, real-world assets, voting & elections, virtual assets, medical data, copyright, supply chain tracking, and more areas.

However, cryptocurrency users may have difficulty trusting (NFTs) non-fungible tokens due to their relatively new nature. As the debate between fungible tokens and non-fungible tokens earns momentum, new advancements could definitely create a significant mark.

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