Since the outburst of NFT popularity, there’s a lot of confusion around fungible and non-fungible tokens. Fungible tokens have always remained a topic of discussion in economics but lately, people from all walks of life have started taking interest in it. So, to make things clear and understandable, Curate founder James Hakim has shed some light on the difference between fungible and non-fungible tokens. Knowing the difference between these two types of tokens will help in understanding NFTs better and why they are being sold for millions.
James Hakim of Curate NFT marketplace begins by explaining what exactly a token means. In the crypto world, a token refers to a type of virtual asset that can be anything of value. When it comes to physical assets, a token is anything visible or tangible that represents a value, quality, or feeling such as an office ID card, driving license, hotel key card, and more. However, in the digital world, a token is a representation of value, stake, voting rights, or anything in the digital ecosystem. To make things further clear, let’s take a close look at both types of tokens- fungible and non-fungible.
Fungibility refers to the ability of goods or commodities to be exchanged with other assets or commodities of the same type. So, if any item is fungible, it means there is another identical item of the same type and value that can be swapped or exchanged for that item. The interchangeability of fungible assets doesn’t compromise the value of either item. Money is the most common example of a fungible asset because a dollar or any other fiat currency can be exchanged for other currencies, goods, or services. The specific features of a fungible token include exchangeability, non-unique, and divisible. It means that fungible tokens are divisible and all same items have equal value. For example, the value of a $10 bill is same throughout the New York, Boston, or Washington. Moreover, a $10 bill can be divided into two bills of $5 without losing value.
Likewise, in the crypto world, all Bitcoins have the same value which means that 1 BTC is worth the same as another 1 BTC. No matter where you go, all fiat currencies have fungibility as the fundamental feature. These divisible assets are not unique and can be exchanged for another asset of like kind.
The other type of token is the non-fungible token, commonly known as NFT. These are the opposite of fungible tokens because of their distinctiveness. An NFT represents something unique that cannot be exchanged for something of equal value such as artwork and collectibles that are one-of-a-kind. Typically, there is only one original piece and this distinctive property makes NFTs non-divisible and non-interchangeable. Taking further advantage of revolutionary blockchain technology, non-fungible tokens are created. Some crypto enthusiasts believe that these non-fungible tokens are the future of the blockchain economy. This technology is used for creating digital assets because it offers security and immutability.
Non-fungible tokens are not the same as cryptocurrencies because, unlike cryptos that can be exchanged, NFTs are not interchangeable. NFT such as Crypto Kitties is a unique collectible item that cannot be split or exactly changed for other non-fungible tokens of the same type. Unlike Bitcoin or a $1 bill, no two CryptoKitties are the same. The uniqueness of NFTs makes them scarce which increases their demand and value. So, a vintage car, rare coins, digital artwork, and other unique items that is distinctive and cannot be divided or interchanged are all Non-Fungible Tokens. A dollar bill can be divided into smaller parts while an NFT can’t.