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What are Semi-Fungible Tokens, and What are They Used For?

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NFTs were the highlight of 2021 inside the crypto marketplace. Although they’re precise and can have enterprise-wide use instances, they have boundaries. Semi-fungible tokens were developed to cope with the restrictions of NFTs. 

In this newsletter, we can explore semi-fungible tokens and their pros compared to NFTs.

What is a semi-fungible token?

Semi-fungible tokens integrate the functions of their fungible and non-fungible opposite numbers. SFTs use the ERC-1155, which is well known for allowing the one-to-one exchange of the same SFTs within the same settlement. During their preliminary tiers, SFTs act like fungible tokens.

An SFT can enter a “second” life cycle degree once redeemed, losing its face price and becoming non-fungible. For example, an SFT representing a $50 Spotify voucher can be exchanged for another equal voucher. Once the voucher is used or expires, the token will become non-fungible and probably a collectible item with a new cost.

Fungible and non-fungible tokens

Fungible tokens, including cryptocurrencies like ETH or DAI, are divisible and interchangeable. Fungible tokens of the same type have the exact cost, no matter their issuing place or specific identifying traits, and can be exchanged with one another without affecting their worth. In the Ethereum surroundings, fungible tokens are built using the ERC20 token preferred.

Then we’ve got NFTs, i.e., a particular digital certificate of authenticity connected to singular virtual properties, such as artwork, tunes, or collectibles. Unlike fungible tokens, NFTs are not interchangeable. Each NFT has remarkable value based on its inherent traits, rarity, or creator, with ownership recorded on the blockchain.

NFTs appoint the ERC-721 trendy, which defines their regulations and features, in conjunction with their very own unalterable certificate of authenticity. While non-fungible tokens offer the particular cost of linking authenticity to virtual property, there are built-in transferability barriers. Each token calls for a separate transaction, making them ill-appropriate to property issued in a couple of copies.

How semi-fungible tokens are made

Currently, SFTs can be minted with Ethereum’s ERC-1155 standard. It is just one of many Ethereum token standards, which are guidelines for building Ethereum-based tokens that work with all other ERC-based projects.

In 2017, the blockchain game creators Enjin, Horizon Games, and The Sandbox created the ERC-1155 standard, which combines the features of the ERC-20 (fungible token) and ERC-721 (non-fungible token) standards. It enables the creation and management of fungible and non-fungible tokens using a single, smart contract, a computer program that takes action on its own initiative under specific circumstances.

In the gaming business, where fungible elements like in-game currencies like gold bars or V-Bucks are combined with non-fungible things like weapons and collectibles, SFTs are very helpful. That implies that game developers can produce both kinds of tokens and guarantee their compatibility, enabling players to convert items like guns into gold bars and vice versa with ease.

How does SFT differ from fungible and non-fungible tokens?

Semi-fungible tokens combine the characteristics of fungible and non-fungible tokens at different stages of their lifecycle. Initially, SFTs behave as fungible tokens, which may be swapped for identical tokens with no loss of value to either party. Once used, they lose their exchange value and acquire the characteristics of collectible non-fungible tokens.

What are the key advantages of employing SFTs over NFTs?

SFTs are superior to NFTs in certain situations because they are more efficient, cost-effective, adaptable, and provide better transaction security.

  1. Reversible transactions.

Perhaps the most notable advantage of adopting SFTs over NFTs is that token transfers to invalid addresses are reversible and refundable.

  1. Increased Efficiency and Cost-effectiveness

Unlike NFTs, which must be transmitted individually, SFTs allow for bulk transfers. It means several SFTs can be sent using a single program call, saving time and considerably lowering transaction costs.

  1. Improved security.

SFTs provide for extremely secure transfers by improving on the existing NFT standards.

What exactly are SFTs used for?

SFTs are currently most commonly employed in gaming and metaverse environments, where on-chain activities can be linked to in-game assets. Let us look at two examples: managing several units of the same NFT and tracking gaming successes.

Genopets SFT Example

Genopets is an NFT game on the Solana blockchain that uses NFTs and SFTs. Players can purchase a unique pet as an NFT and the numerous materials they collect (such as wood, water, crystals, metal, and so on) as SFTs.

SFTs are ideal for NFT gaming because they allow participants to buy and sell many assets (for example, 15 water crystals) in a single transaction. Fungible tokens can accommodate many assets in a single program (i.e., a smart contract), resulting in less congestion and lower transaction costs than ordinary NFTs, which are handled separately.

In-game Achievements Example

SFTs are also handy for preserving game history. For example, an in-game weapon can be created as an SFT, and as it is used, it takes on the qualities of an NFT, transforming into a new, unique object due to its documented in-game history.

As the object changes hands over time, fresh history can be maintained (for example, how many times the weapon has been used, how many times it has been used to kill other players, and so on), similar to typical weapon attributes in web2 video games.

How do SFTs work on Solana?

SFTs, or Semi-Fungible Tokens, work uniquely on Solana. They’re essentially special accounts where data about a token’s characteristics in a game or virtual world is attached.

Unlike many other blockchains, Solana splits its operations into two parts: programs and accounts. Programs handle the logic, while accounts store the data. It is different from how most blockchains work, where smart contracts handle both logic and data.

In Solana, programs can interact with and change data stored in accounts. This setup allows programs to run simultaneously and access multiple accounts simultaneously, making Solana very fast and efficient.

Solana accounts are basically collections of bytes stored at specific addresses. Each account has a unique address, which is usually a public key. To access an account, a program needs the corresponding private key. Some programs are allowed to modify the data in these accounts.

There are different types of accounts on Solana, including:

  • Mint Accounts: These store general information about a token.
  • Token Accounts: These show the relationship between a user’s wallet and a specific type of token.

The Future of SFTs 

Today, SFTs are still in their early stages, with individuals becoming more aware of this new sort of token. They provide flexibility, traceability, and other benefits to their users.

Furthermore, semi-fungible tokens have addressed the issue of non-fungible tokens. They are useful for gaming platforms where users need fungibility.

Furthermore, SFTs are safer than both digital and physical currencies. These tokens are here to stay and can help define the future of the digital world.

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