All crypto assets are subdivided into coins and tokens. In turn, tokens can be fungible and non-fungible. By understanding the differences between them, you can better understand their value and make informed decisions about investing. If the differences between coins and tokens are not obvious and not immediately clear, then the differences between fungible vs non-fungible tokens are much easier to understand.
What Are Fungible Tokens
Fungible tokens can be exchanged for the same tokens without losing the value of each of them. This is exactly the same as when exchanging a $1 coin for a one-dollar bill. That is, fungible tokens are very similar to the usual fiat currency.
1 dollar can be exchanged and get 100 coins in the denomination of one cent. But at the same time, the value of your dollar will remain the same as before the exchange. Each of the coins can also be exchanged for the same coins as the whole currency.
Bitcoin can be divided in a similar way, only the denomination of the unit will be significantly less than is possible for fiat currencies. The small “bargaining chip” of the most famous cryptocurrency is called a Satoshi. The cost of 1 Satoshi is 0.00000001 BTC. That is, Bitcoin and other digital coins can be called fungible tokens.
What Are Non-Fungible Tokens
However, in addition to fungible tokens, there are also non-fungible tokens (NFT). Each unit of such an asset exists in a very limited quantity (many are in a single copy). These units cannot be split without losing value.
In the physical world, the closest analog of NFT is collectibles: artwork, handicrafts, gems, and more. Moreover, in the physical world, the transformation of standard fungible tokens into NFTs is quite possible. This happens quite often with coins and banknotes.
Specific features of NFT:
- They can be given or sold, but not exchanged. They are sold only on specialized trading platforms. The price of each unit is set depending on its uniqueness. Further changes in its value are practically unpredictable. For example, it is easy to find XLM price prediction 2030 on the network, but there are most likely no similar predictions for the cost of CryptoPunks.
- Each unit is authentic and cannot be counterfeited or copied. They are subject to ownership.
Just like anything can become a collectible, any file can be turned into an NFT: video, audio, image, text, drawing registered on the blockchain.
During the process of registering a file, the blockchain assigns it a unique identifier and proof of ownership. It is these functions that turn a regular file into an NFT. From this point on, it cannot be changed, deleted, or duplicated.
Most Popular NFTs
Since NFTs are digital collectibles, their use in the crypto world is very different from the use of crypto coins and fungible tokens. Like their physical counterparts, they are a long-term investment tool. Here are some examples of popular NFTs
CryptoKitties is a game reminiscent of Tamagotchi, virtual pets on the Ethereum blockchain. The algorithm of the game makes it possible to breed, buy, sell and exchange digital cats.
Each cat has individual characteristics and its value depends on the rarity of the parameters. A Crypto Cat can only be bought or sold in its entirety. Today it is one of the most famous and most popular NFTs.
Another original NFT series is CryptoPunks. In this series, 10,000 unique characters have been created, each of which can only belong to one person. These characters were available to any Ethereum wallet holder for free. Now they can only be redeemed from their owners.
The CryptoPunks series are very expensive NFTs. In early 2021, one of them was sold for $ 760,000.