Fungible vs. Non-Fungible Tokens: What is the Difference?

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Not even the extremely bearish crypto market run of 2022 could deter investors from quitting totally.

In truth, many traders lost assets as previously high-value tokens had their worth tumble dramatically almost overnight. The FTX exchange crash summed up 2022 for investors, as millions more were lost.

Today, investors have an almost wary approach to the market, keen to avoid the buying spree that landed them in hot water a year ago.

For newbies to the cryptocurrency market, many investment choices must be made.

Are stablecoins the best options? Is Bitcoin still worth it? What are Ethereum’s prospects after its switch to a Proof-of-stake consensus mechanism?

All of these, and more, are the questions at the back of the minds of investors, as is the search for alternative Web 3.0 assets, such as NFTs

If you’re interested in investing in NFTs and are wondering how they differ from other crypto articles, you’re in the right place.

Read on.

What are NFTs?

NFT stands for Non-Fungible Token. An NFT is an immutable digital asset hosted on the blockchain, like cryptocurrency tokens.

NFTs are blockchain representations of digital media. As such, they usually come in the form of art pieces like photos, in-game items, videos, music, and even documents.

Like cryptocurrency, they’re traded online. Some popular NFT marketplaces are Rarible and OpenSea.

NFTs have existed since 2014 and were initially minted on Ethereum’s decentralized blockchain. Although they can also be minted on other blockchains, Ethereum still remains the main platform for NFT minting today.

The popularity of NFTs has grown exponentially in recent years, with the NFT market worth $41 billion in 2021 alone.

Today, NFTs are popular with content creators as an alternative to digital content publishing.

NFTs possess many of the original features of cryptocurrency, including uniqueness. They’re usually one of a kind, and there are never two exact NFTs. The idea is to create digital scarcity, thus adding to the value of an art item with the guarantee that it can never be replicated on the blockchain.

What are Fungible Tokens?

Before we get on with fungible tokens, it’s essential to understand the term “fungibility,” is essential, as therein lies all the difference.

Fungibility is the extent of interchangeability of an asset with similar assets.

As such, fungible tokens are crypto assets that have all standard fungible features. That is to say that they have to be divisible, non-unique, and possess clear market values.

Now, it’s clear to see that any crypto whose price is easily determined and can be traded on an exchange platform is a fungible token. Examples of these tokens include crypto assets with sizable market caps like Ethereum, Cardano, Solana, and Bitcoin.

Differences Between Fungible and Non-Fungible Tokens

Here are some of the main differences between fungible tokens and NFTs:

Utility

Those learning how to invest in NFT should be aware that they have limited utility compared to most cryptocurrencies.

NFTs are often held in reserve as assets by collectors who’re keener on the art itself than any usefulness that it provides.

On the other hand, many altcoins have real-world utility and go beyond mere tokens of digital payments.

Of course, there is an exception regarding NFTs. For instance, certain NFTs double as in-game assets, while there are increasingly more use cases for NFTs in the Metaverse.

However, fungible tokens still outstrip NFTs in terms of utility.

Content

Another major difference between fungible and non-fungible tokens is the content stored in both assets.

Fungible tokens, such as cryptocurrencies, function as stores of value. For instance, one Bitcoin is worth the monetary value it provides regarding fiat equivalence.

On the other hand, non-fungible tokens store data. Therein lies its own value- a means of storing artistic data.

Technology Used

Fungible tokens often have their own blockchains. For instance, a layer-1 blockchain like Ethereum is powered by its native Ethereum (ETH) fungible token.

NFTs, on the other hand, cannot constitute an entire blockchain. Rather, they’re developed or minted on the blockchain and hosted there.

Inherent Quality

The primary quality or feature of NFTs lies in their irreplaceability. This is where NFTs derive their value- in scarcity and uniqueness.

On the other hand, Fungible tokens are fungible, that is, highly interchangeable on decentralized exchanges.

Standards

Another important factor distinguishing NFTs from fungible tokens is the use of standards. Standards refer to rules defining the mode of interaction between a token and other tokens.

NFTs on the Ethereum blockchain are generally created to the ERC-721 standard, while fungible tokens based on the Ethereum blockchain are designed to the ERC-20 standard.

Conclusion

Fungible tokens remain the preferred form of assets for investors due to their interchangeability for traders looking to exchange tokens and make a profit quickly.

However, NFTs appeal more to art collectors and digital content creators looking to profit better from their work and avoid losing income to pirates and plagiarism.

Written by Zara Mkrtchyan

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