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- Tokens can be anything that represents something tangible and have been in use for many years. They can be of different types depending upon their use.
- Fungible and Non-Fungible tokens are popular terms in the world of cryptocurrency, with significant differences between the two.
- Non-Fungible Tokens seem to be making a major position in the crypto industry and are continuously emerging as celebrities and brands continue to buy and get involved with them.
Tokens are something that represents anything tangible. Tokens are never specified to any role, and they can serve different purposes for their native ecosystems. And in the world of cryptocurrencies, Tokens are the major players. For instance, they can serve as a key to entering the decentralised apps(DApps) or give the holders some voting rights.
Types of Tokens:
Tokens can be of various types in the crypto industry, like Security tokens traditional assets like shares or stocks represented digitally on the blockchain. Then there are Utility tokens, providing holders with access to blockchain-based products and services. Payment tokens are ones like Bitcoin or Litecoins used for digital payments.
But the ones distinctly famous in the crypto industry are Fungible tokens and Non-Fungible Tokens. In the blockchain, fungible tokens can be digital currencies like Bitcoin(BTC), and Non-Fungible Tokens(NFTs) are data units that represent a unique digital asset or digital art stored on the blockchain technology.
Difference between Crypto coins and Crypto Tokens:
Cryptocurrencies and crypto tokens both operate on Blockchain technology. Cryptocurrencies are coins for payments that have their own blockchain networks. Bitcoin, Litecoin, ETH are all cryptocurrencies that operate on their blockchain.
However, crypto tokens are the ones that are created on another blockchain; for example, Uniswap, Chainlink, ERC 20 etc., are all tokens developed on the Ethereum blockchain.
What are Fungible Tokens:
The type of cryptographic tokens that are interchangeable with fungible tokens of the same type, which are identical and uniform, is known as Fungible Tokens. These are the tokens that we use in our everyday life. They apply to the real world and digital assets as well. Fungible tokens are designed in a way that every fraction of the token is equivalent to other units. They are assumed to be interchangeable and divisible too.
For instance, the very first and leading cryptocurrency is fungible in nature. One Bitcoin is equal to one Bitcoin and similarly to other units of Bitcoin. The most common examples are fiat currencies and money.
There can be risks associated with Fungible tokens, for instance, the Squid Games tokens that were introduced, and people thought they were related to the Netflix series with the same name. However, the people who bought them were not able to sell them. And this turned out to be a fraud. Plus, these tokens can be generated in any number, which again is a drawback.
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What are Non-Fungible Tokens(NFTs):
NFTs are unique and collectable items, and they can not be changed with any other token of the same type. The crypto assets that behave differently, offering opportunities for investors and traders, are called Non-fungible Tokens. NFTs operate on blockchain technology. Similar to cryptocurrencies, they can be bought, sold, stored and traded in without the need of an intermediary.
Similar to crypto-assets, they are resistant to thefts, immutable, and easily trackable. The only thing that differs is they are unique. Hence, not interchangeable with any other NFT. NFTs function like collectables or trading cards. NFTs can represent absolutely anything digital, from music, art, real estate to any in-game item.
NFTs provide people with opportunities, especially digital artists who can have digital ownership on the internet. They can showcase their art and grow more, with buyers purchasing them without fearing fraud.
Some of the notable NFT projects are Bored Ape Yacht Club(BAYC), an Ethereum based collection of 10,000 unique Bored Ape NFTs created by Yuga Labs. It has popular names and brands like Adidas, Justin Bieber, Gwyneth Paltrow, Jimmy Fallon, etc., associated with it. Similarly, other projects in the sector are equally popular, like the CryptoPunks, Mutant Ape Yacht Club(MAYC), Axie Infinity, NBA Top Shot, etc.
But Non-Fungible Tokens do have some risks associated with them:
- NFTs have legal and regulatory challenges because they don’t have a specific definition and can represent a wide variety of things. Similarly, there is no particular regulatory framework for them.
- The values of these NFTs mainly depend upon the scarcity and perception of the owners or buyers. Hence, the prices can fluctuate.
- The NFTs sector has risks of replication of the original NFTs or logos. Fake NFT stores can lead to cyber security frauds. Malicious users can fake themselves as artists too.
- The smart contracts on which the NFTs are not totally resistant to hacks and frauds, hence the maintenance of NFTs becomes a challenge.
Fungible Tokens Vs Non-Fungible Tokens(NFTs):
Interchangeability
Fungible Tokens are entirely interchangeable with each other, whereas non-fungible tokens are not as they are not replaceable with NFTs of the same type.
Value Transfer
It is easy to transfer tokens to other Ethereum accounts by direct transactions or swap technologies. Fungible tokens hold the same value no matter what. But non-fungible tokens hold a unique value proposition. They have a particular owner, and values are always different due to the separate treatment of each token.
Purposes and Value
Fungible Tokens can be used as a mode of payment or a store of value. But NFTs can be a wide variety of things like intellectual property, musical composition, gaming, utilities, etc.
Fungible Tokens store a value; NFTs can store data.
Technology
Fungible Tokens can have their own Blockchains, whereas Non-Fungible Tokens(NFTs) are built on another blockchain.
The popularity of tokens goes simultaneously with that of digital currencies, and they are only expected to grow in the future. However, every new technology has some or other risks associated with them. Hence people should always analyse and get a thorough understanding of them. Non-Fungible Tokens have become very popular in recent times, with popular celebrities and brands getting involved in the sector like Justin Bieber, Eminem, Adidas, Avenged Sevenfold etc. Despite the risks and criticisms, the industry is growing and witnessing wider adoption day by day. And are only anticipated to emerge prominently in the future.
Andrew is a blockchain developer who developed his interest in cryptocurrencies while pursuing his post-graduation major in blockchain development. He is a keen observer of details and shares his passion for writing, along with coding. His backend knowledge about blockchain helps him give a unique perspective to his writing skills, and a reliable craft at explaining the concepts such as blockchain programming, languages and token minting. He also frequently shares technical details and performance indicators of ICOs and IDOs.
