All About Fungible & Non-Fungible Tokens
As crypto-technology and the blockchain continue to progress from their humble beginnings, we are now witnessing the immersion of new, non-fungible tokens that are poised to change the blockchain industry in the months and years ahead. But what does non-fungible even mean? And how will these new tokens impact cryptocurrency in the future?
What Does Fungible & Non-Fungible Even Mean?
The first step that comes in appreciating and understanding the difference between fungible and non-fungible tokens is understanding just exactly what the word “fungible” even means.
In the case of tokens, something is fungible when it can be easily replaced by something identical – and is interchangeable with ease.
An example of this in real life would include if I lent you a dollar bill, I shouldn’t expect (or even need) to get back that exact same dollar bill in order to be paid back. This demonstrates fungibility -- that even if you were to receive a different dollar bill, that dollar bill would still be perfectly adequate in making up for the dollar bill you originally lent out.
This all changes when an item becomes non-fungible. With non-fungible tokens, for instance, two tokens may look identical at first glance, yet contained within each of those tokens is a series of unique information or attributes that makes them impossible to simply swap out.
One example of non-fungible items in real life is a plane ticket. Although two tickets might contain the same types of information, have the same format, and even be made out of the same material, we cannot just exchange our plane ticket with that of another passenger and expect it to be equally reciprocated
How Are Non-Fungible Tokens Different From Other Tokens?
Many tokens – and indeed cryptocurrencies – are fungible. If you send someone a Bitcoin, and you get one back, you wouldn’t notice any difference between the two coins.
Fungible tokens are mostly built on this concept, encoded in a standard called ERC-20.
Non-fungible tokens, on the other hand, utilize a standard called ERC-721. This means that these tokens contain unique identifying characteristics which make them both distinct and digitally-scarce. The idea behind this is that these special tokens can be used in situations where it is hard to put a price on the item, such as with pets. A very humorous start-up, CryptoKitties uses this concept with their digital kittens, where the genetics of each cat is put on the blockchain, with some being rarer than others.
What are the Advantages & Disadvantages of Non-Fungible Tokens?
With high hopes of becoming “the ultimate vehicle for putting every significant asset on a public or hybrid blockchain with 100 percent immutability and security,” there are several advantages to using non-fungible tokens.
The first advantage is in its uniqueness. With the ability to provide more detailed metadata to your crypto assets, non-fungible tokens offer a richness of authenticated data that could eventually be used to improve an asset’s value to investors.
Another advantage of these new tokens is that they can create digital scarcity that can be authenticated without the need for a centralized organization to confirm their veracity. This is important because it uses the blockchain as a way to create different, digitally-scarce items, all while being decentralized.
Despite the initial promise behind this revolutionary idea, there are still some disadvantages. The first disadvantage of non-fungible tokens is that adoption of the critical ERC-721 protocol has not been as widespread as advocates of the tokens originally hoped. Due its newness, it can often be tricky and time consuming to properly develop non-fungible token applications. The second disadvantage is that non-fungible tokens cannot be divided, so you are stuck with less flexibility when it comes to using and buying them.
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