Key difference: Fungible vs Non-Fungible Token
July 16, 2022 5:13 PM
The whole idea of fungible and non-fungible tokens has long existed in economics. In a blockchain scenario, fungible tokens represent cryptocurrencies such as Bitcoin (BTC). On the other hand, non-fungible tokens are units of data which highlight and show a unique digital asset that has been stored as well as verified on the blockchain.
Being familiar with these concepts in economics is very ideal for understanding both concepts in general. In comparison to the economics concept, crypto tokens highlight their fungibility property through a code script. Fungible tokens or assets are divisible and not unique while non-fungible assets are unique and aren’t divisible.
Fiat currencies like the dollar are fungible in the sense that a $1 bill in New York City has the same value as a $1 bill in Miami. While a flight ticket is non-fungible because there cannot be an exact one in another instance due to the specificity of its data. Items ranging from houses, boats, cars etc, are non-fungible assets because they can be one of them as a whole.
The biggest difference between non-fungible and fungible assets is hinged on the type of contents they store. Bitcoin, which is a fungible token stores values, non-fungible tokens store data ranging from the academic title and artworks.
Features: Fungible tokens are divisible, non-unique and interchangeable while Non-fungible are indivisible, unique and irreplaceable.
Purposes: Fungible tokens can act as a payment system and store values while Non-Fungible tokens deal with intellectual property, academic title, artwork, music composition, gaming, utility, assets like stocks, shares, and services like subscriptions, etc.
Core Difference Between Fungible and Non-Fungible Token
Interchangeability: one can easily transfer fungible assets from one owner to another to make payment for some specific things. In general, they are used to make payments and also track balances.
Value Transfer: the fungible vs non-fungible tokens comparisons imply that non-fungible tokens or NFTs have a unique value proposition. In non-fungible tokens, there is always a unique owner and their values could range from each other because of the separate treatment of each token.
Ethereum Token Standards: token standard is another one to decide the difference between fungible and non-fungible tokens. Token standard has evolved as a good alternative for defining the difference between fungible and non-fungible tokens. The decision for standardizing the rules for governing the underlying architecture of tokens is very much a standard for differentiating fungible and non-fungible tokens.
Fungible Tokens Use ERC-20: this is a specific set of rules and ERC means Ethereum Request for Comment. In ERC-20, fungible tokens that are of the same types can replace one token. Fungible tokens are easy to divide and they can serve their purpose and the smaller fraction can be used to pay back a larger amount.
Non-Fungible Tokens use ERC-721: ERC-721 helps in creating non-fungible tokens. This is because of the problem caused by the limitation of ERC-20, hence the need for ERC-721.
In conclusion, fungible and non-fungible tokens serve their rights. They are significant aspects which can define the future of blockchain. There is a clear advantage of non-fungible tokens over fungible tokens when it comes to security and immutability. There are still some doubts about non-fungible tokens due to them being relatively new, but they have had a wider acceptance in the blockchain ecosystem as it’s applied in gaming and art.