Difference between fungible and non fungible tokens


Both cryptocurrency and physical money are "fungible," which means they can be traded or exchanged for one another. Non-fungible simply means that something is unique and cannot be traded for another.

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The distinction between fungible and nonfungible tokens is an old one in economics. Coin-like objects were apparently traded as far back as the Roman Empire as tokens for brothels or gaming. During the Middle Ages, English monasteries used tokens known as "Abbot's money" to pay for services rendered by foreigners.


Merchants trading in the British Isles and North America used fungible tokens frequently between the 17th and 19th centuries — they represented a pledge redeemable for goods in times when state coins were scarce.


In more recent times, fungible tokens interchangeable with money have been used in arcade games and casino slot machines. Other types of tokens are used in services such as car washes, parking garages, and public phone booths.


Tokens remain the same in the crypto era: they represent something tangible (physical) or intangible (non-physical, such as a service) within its ecosystem.


Fungible tokens in a blockchain are cryptocurrencies such as Bitcoin (BTC). Nonfungible tokens are data units that represent a distinct digital asset that is stored and verified on the blockchain.


What are the types of tokens?


In the crypto space, tokens can represent any type of service or product. Payment tokens, for example, are coins such as Bitcoin or Litecoin (LTC) that are used to pay for digital transactions.


Utility tokens provide holders with access to blockchain-based products and services.


Security tokens are digital tokens that represent traditional assets such as stocks and shares on the blockchain.


Fungible and nonfungible tokens are the two most distinct types of tokens, as discussed in this article.


What is a fungible and nonfungible token?


Understanding fungible and nonfungible tokens may be aided by familiarity with the concept of fungibility in economics. The only distinction is that crypto tokens express their fungibility via a code script.


Tokens or assets that are fungible are divisible and non-unique. Fiat currencies, such as the dollar, are fungible: A $1 bill in New York City is equivalent to a $1 bill in Miami. A fungible token, like Bitcoin, can also be a cryptocurrency: 1 BTC is worth 1 BTC regardless of where it is issued.


Nonfungible assets, on the other hand, are one-of-a-kind and cannot be divided. They should be regarded as a type of deed or title of ownership to a one-of-a-kind, non-replicable item. A flight ticket, for example, is nonfungible because there cannot be another of the same kind due to its unique data. Because they are one-of-a-kind, a house, a boat, or a car are nonfungible physical assets.


The same is true for nonfungible tokens, which represent a single unique and indivisible item, whether physical or intangible, such as a photograph or intellectual property. The underlying technology that can easily prove ownership of an intangible digital item is blockchain.


The primary distinction between fungible and nonfungible assets is the content they store. While fungible tokens, such as Bitcoin, store value, nonfungible tokens, such as an academic title or an artwork, store data.

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How are tokens different from cryptocurrencies?


Cryptocurrencies and crypto tokens are both based on the same blockchain technology. Cryptocurrencies, on the other hand, are payment coins with their own blockchains. Bitcoin, Ether (ETH), and Litecoin are examples of cryptocurrencies that use blockchain technology. They are fungible crypto tokens that can be used to store value or as a medium to buy or sell goods.


In contrast, crypto tokens are created on a different blockchain. Tokens created on Ethereum include Uniswap, Chainlink, and ERC-20.


What are fungible and nonfungible tokens in a blockchain?


Tokens in a blockchain are commonly known as crypto tokens, and they represent digital units of value created on existing blockchain networks. Businesses create tokens on the blockchain to serve purposes such as transferring value, providing access to a subscription, and even voting.


The first fungible tokens, known as ERC-20, were created on the Ethereum blockchain. They establish the standards that allow developers to create applications of various types.


The initial coin offering era, which generated nearly $15 billion in revenue between 2016 and 2018, was built on ERC-20 tokens.


Nonfungible tokens have been around since the concept of colored coins first appeared on the Bitcoin blockchain in 2012. Rather than creating additional blockchains as sidechains, colored coins enable the attachment of metadata — additional information about the specific data used — to Bitcoin transactions.


Colored coins may represent real-world assets traded on the Bitcoin blockchain; however, they are tied to an external contract and must be based on trust. A group must agree that a certain number of these coins represent a different value entirely. In that case, they may be able to transact in that value using these "designated" coins.


The digital tokens used are satoshis, which are tiny fractions of a Bitcoin that have been marked or "colored in" with information that links the coins to real-world assets.


Colored coins were not widely used in the cryptocurrency industry. They were primarily used to create and trade artworks such as "Rare Pepe" digital cards on Counterparty, a peer-to-peer trading platform built on Bitcoin's blockchain.


The Ethereum blockchain also saw the creation of the first nonfungible tokens, which were used to uniquely identify a product, service, or person.


Some NFTs are based on the Tron and EOS blockchains, which contain voting tokens. The applications for this type of token are limitless, ranging from collectible items like artworks and musical compositions to lottery tickets and concert and sporting event tickets.


Because they are easily traceable and verifiable, NFTs can even be used as marketplaces for storing academic titles and digital identities on the blockchain.


There is a misconception about NFTs: their sole perception as artworks following their incredible market growth in 2020 and 2021. However, long before the arts were involved, NFTs had a significant application in the gaming industry.


CryptoKitties first appeared on the Ethereum blockchain in 2017. The game was the first real-world application of NFTs in the cryptocurrency space, and it eventually became the most prominent decentralized application on the Ethereum protocol.


NFTs are identified on the Ethereum blockchain using a different standard than the ERC-20, the ERC-721.


How do NFTs work, and how do you create one?


Nonfungible tokens can be created and stored in an open and accessible public blockchain. The items they represent can be verified and traced, but the owner can remain anonymous. NFTs are created technically through smart contracts that assign ownership and manage the transferability of the NFTs. The minting process consists of several steps, beginning with the creation of a new block and ending with the validation and recording of data on the blockchain.


More information on creating a nonfungible token is available.


How to buy or sell a nonfungible token


NFTs can be purchased or sold online, and they serve as digital proof of ownership for any given item. Transactions can take place in cryptocurrency exchanges or online marketplaces such as Rarible, Nifty Gateway, or OpenSea, to name a few. An item, like on eBay, can be sold at a fixed price set by the owner or by bidding in an auction.


The first step is to purchase a cryptocurrency such as Ether and register with one of the available platforms. The user must then transfer the cryptocurrency to a cryptocurrency wallet that supports the tokens. ERC-721 tokens are supported by MetaMask, Trust Wallet, and Coinbase Wallet. Binance Smart Chain, Tezos, Polkadot, EOS, and Tron are among the other blockchains that support NFT transactions. However, users must ensure that


The first step is to purchase a cryptocurrency such as Ether and register with one of the available platforms. The user must then transfer the cryptocurrency to a cryptocurrency wallet that supports the tokens. ERC-721 tokens are supported by MetaMask, Trust Wallet, and Coinbase Wallet. Binance Smart Chain, Tezos, Polkadot, EOS, and Tron are among the other blockchains that support NFT transactions. Users must, however, ensure that their chosen collectible platform is compatible with their chosen blockchain. After connecting the wallet to the platform, you can upload an image or file containing the NFT.


Users can also create NFTs on platforms such as MakersPlace. However, they must first register and become a listed artist before they can begin working on it.


Celebrities such as Grimes, Paris Hilton, and Snoop Dogg have all contributed to the popularity of NFTs by publicly declaring their participation in the space.


What are the pros and cons of using nonfungible tokens?


Pros


Artists can use NFTs to claim royalties on future sales after their artwork sells for the first time. The ability to claim such future gains is a significant breakthrough in the art world, and it has encouraged many artists to turn to this new digital marketplace.


All users need to do is activate a specific blockchain function. Every time the NFT is sold or transferred ownership, the procedure allows a profit percentage to be paid to the artist.


For the first time, artists and content creators can monetize their work using blockchain technology, and they can do so without the assistance of a third party such as an agent. Physical galleries and auctions are also eliminated, allowing artists to turn to the digital realm for more accessible and smoother transactions.


Cons


Digital photos, like photographs, can be duplicated, with the downloaded duplicate looking identical to the original. The ability to create infinite reproductions of artworks has caused consternation and skepticism among the artistic community. If people can download thousands of copies of the original, what is the point of paying exorbitant prices for the original?


Close inspection reveals that digital artworks are identical to traditional art masterpieces. Someone can make an unlimited number of copies of the Mona Lisa, but only one is the original.


The question then becomes, what in the crypto world grants ownership of the original asset?


A cryptographic digital signature, the nonfungible token, assigns ownership of the original piece to someone. On a blockchain, ownership of the work can be verified and transferred.


The future of NFTs


As the world becomes more digitized, NFTs may offer a viable solution for tokenizing ownership and property. Both fungible and nonfungible tokens enable proper digitization and storage of real-world assets while also keeping them secure.


The NFT market will be worth $2.5 billion in the first half of 2021. Given the exorbitant selling prices of some of the artworks, this should come as no surprise. "Everydays: the First 5000 Days" by digital artist Beeple was auctioned off for $69.3 million at Christie's. In the meantime, Twitter CEO Jack Dorsey auctioned off an NFT of his first tweet for $2.9 million.


NFTs are set to revolutionize multiple digital markets by facilitating transactions and improving interpersonal interactions.


NFTs, on the other hand, are investments based on demand rather than fundamentals because they are collectibles. Bitcoin and Ether are assets whose value is based on technological innovations and economic adoption, providing more robust fundamentals to the astute investo


People's interest in the sector, on the other hand, and how much they are willing to pay for an NFT, drive the price of an asset, ultimately determining the future of the entire marke t.r.ket.


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