What's the Difference Fungible and Non-Fungible Tokens?

What's the Difference Fungible and Non-Fungible Tokens?

If you’re familiar with blockchain-based currency, you’ve probably heard the term fungible token thrown around. But what does that mean? And how does it relate to non-fungible tokens? Let’s go over the differences between these two types of cryptocurrencies and find out which one will work best for your situation.

A Closer Look at Why Fungibility Matters

Physical money is essentially all interchangeable. The one-dollar bill in your pocket can be exchanged for any other one-dollar bill, just as a five-dollar bill can be exchanged for any other five-dollar bill. On paper, non-fungibility appears to make sense—if I give you a gift card for $50 and then you exchange it for another $50 gift card, that’s not giving me anything in return. But digitally, fungibility doesn’t hold up; what if two people are on the same cryptocurrency or token? To answer questions like these we need to take a closer look at how each of these kinds of tokens works.

How Do Cryptocurrencies Use Fungibility?

At its simplest, a currency is fungible if two items of different denominations can be considered equal in value. For example, one $1 bill can be traded for another $1 bill with no loss to either party. A non-fungible token (NFT) is an item that holds value in itself. NFTs could refer to anything from cryptocurrency to collectibles like Beanie Babies. Although each item has value on its own, it cannot simply be exchanged for other tokens. To illustrate: imagine owning 1/1000th of an ounce of gold as compared to owning 1 full ounce. If you sold these pieces separately, you would most likely receive very different prices for them because your customers see added value in having a full ounce versus smaller parts...in other words, there’s nothing fungible about it!

Understanding the Relevance of Non-Fungibility

While fungibility allows for exchanging one currency or digital asset for another, non-fungibility makes a token unique in some way. One of cryptocurrency’s most commonly known tokens, Bitcoin, is completely fungible. But if you want to buy something like rare art, which cannot be exchanged for anything other than another piece of rare art (for example), then you need non-fungibility. NFT tokens can help make sure no two pieces are exactly alike by recording each owner’s information on an immutable blockchain ledger. This ensures that ownership rights of these pieces remain intact regardless of how many times they change hands.

Let’s Talk About Art—And How Blockchain Can Help

In simple terms, fungibility means a thing is interchangeable with another like thing. This is commonly used in currency—all dollars are interchangeable, for example. If you want to get a little more specific about it, then all legal tender notes issued by any one country are interchangeable with one another as well. However, there’s an important difference between these two types of fungibility: not all cryptocurrencies can be interchanged for each other—and that’s where non-fungible tokens come into play. How so? Let’s dig in!

The Fun World of CryptoKitties

CryptoKitties are ERC721 tokens, which stands for Ethereum Request for Comments #721. It’s a protocol that allows for non-fungible assets to be easily tokenized and traded on an open market like Ethereum. (If you want to learn more about these kitties, check out CryptoKitties 101: An Idiot’s Guide.) When it comes to NFTs, there are some key differences between them and cryptocurrencies like Bitcoin or Ether. Here are three examples of why NFTs aren’t fungible:

What Are All These Different Kinds of Token Interfaces Anyway?

Whether you’re playing a video game or buying crypto, there are two basic interfaces to understand: fungible and non-fungible. In a nutshell, fungibles are generic items that can be substituted for one another. NFTs are unique, which means they aren’t exactly interchangeable with other assets of their kind. Every token has a unique ID that keeps it from being traded in automatically for any other asset of its type. These identifiers also keep the tokens relatively safe; only those who hold a matching private key can withdraw them.

7 Ways in Which Artists Can Benefit from Blockchain Technology

It can provide a way to better control your content, which is especially important for independent artists. Artists can use blockchain technology to upload their content in encrypted form, granting only specific privileges to other users. That way, you can control how others use your music and art. Since blockchain data isn’t easily tampered with, it can also help make sure that royalties are distributed appropriately. Currently, there are several startups working on projects related to these principles. For example, Ujo Music has developed a platform using Ethereum (the same crypto platform as Cryptokitties) for fair distribution of funds between artists and creatives and their collaborators. -Shelby Switzer

Is your digital art on the blockchain?

NFTs involving digital art generally do not store the associated artwork file on the blockchain due to its size. The token functions in a way more similar to a digital certificate of authenticity, letting you prove ownership of the art without needing to upload the file. This can be very convenient in certain situations, but NFTs don’t benefit from the same transparency as tokens that store the original file on-chain. Luckily, that’s changing with new developments in blockchain technology and NFT adoption on platforms like OpenSea and Rarebits!

File types compatible with blockchain

JPG, PNG, MP4, MOV, M4V/MOV, AVI/RMVB. The file type for an image token can be changed to something other than a JPG. This is useful if you want to store images from a variety of sources or use custom logos in place of existing tokens. NFTs involving digital art generally do not store ... A new way to experience video games: Virtual Reality has always intrigued people with its ability to transport users into different worlds; whether it’s floating through space like Buzz Lightyear in Toy Story or submerging yourself into ancient Egypt as Lara Croft. However, VR has never really had much staying power because it’s expensive and hard to set up... until now! Now that prices have dropped and more products are being created, VR has finally reached its potential!

Converting images to the right format

If you’re using digital files, it’s important to make sure that they’re not in any form of compression. To do so, convert your file to a PNG format and make sure its file size is less than 8 MB. Once you have that done, upload your image to CryptoKitties (and don’t forget about our very own kitty bazaar). There are also other non-blockchain art platforms worth checking out if CryptoKitties isn’t doing it for you. For example, check out Rarebits which lets artists earn up to 95% from their sales by setting different prices based on when an artwork gets purchased during the sale period or selling their work with initial pricing. Artists can also set what terms potential buyers must abide by before purchasing their work such as no refund or requiring 24 hours notice before purchase.

What about other software?

There are plenty of blockchain applications that don’t involve representing an NFT. Consider how you might use a token to represent other types of data or assets. You could use a token to represent an ownership stake in something, such as stocks or property. Or maybe it represents loyalty points that can be redeemed for goods and services at participating businesses.

Blockchains have problems too

They’re not secure, for one thing. They’re new, and changing all of that code takes a lot of effort; blockchains are also notoriously slow (especially when compared to centralized databases like those found at banks). Some say blockchains could be powerful tools for issues ranging from identity management to securities trading. But critics point out that blockchains are hard to test due to their instability and potential security flaws. And most agree that, despite recent advances in technology, these problems won’t go away overnight. Despite all of these limitations, it may be worth exploring whether a blockchain would work in your specific situation. For example: If you own money in multiple currencies across several countries and have no clear way to change them back into fiat currency—maybe it is time to consider integrating blockchain into your financial operations.

Conclusion

Is it possible to create tokens that store data or even artwork within them? The answer is yes. However, while they might solve some problems in today’s marketplace, they do not provide a complete solution to all of them. Even if we find ourselves with a token standard for every imaginable use case, we’ll still need standards for sharing information between blockchains—and how does one maintain ownership over virtual goods and content without a centralized server managing all those transactions? (Looking at you, Etheremon.) One day there may be an easy answer to these questions—or maybe there won’t be.