Given the recent spike in popularity of NFTs, you might be surprised to know that cryptocurrencies have been around since 2008. For those just getting introduced to the crypto world, there are a lot of terms that might seem confusing.
One of the first questions you might
have is the difference between a fungible vs. non-fungible token. Thankfully,
the answer is pretty simple. Read on to learn more about the nature of
cryptocurrency.
Defining
a Token
Before we talk about the differences
between a fungible token and a non-fungible token, it helps to understand what
a token is in the first place. Tokens aren't just used in the cryptocurrency
world — we use tokens every day in the real world even if we don't call them
that.
Simply put, tokens are a
representation of a service, good, quality, or fact. For instance, a student ID
is a token that proves someone attends a school. Your checkbook is proof
that you have a bank account.
As you can see, tokens don't always
have to be associated with money. They're just a representation of something.
However, cryptocurrency tokens are most often associated with money and value.
What
Is a Fungible Token?
Now that you have a general
understanding of what tokens are, we can start defining what a fungible vs.
non-fungible token is in the crypto world. You may not realize it, but fungible
tokens have been around for as long as currency has existed.
See, fungible tokens represent value
that is divisible and uniform. For instance, $1 is always worth $1 no matter
where you are in the United States. Furthermore, a $20 bill can be divided into
two $10 bills — both amounts hold the same value.
Even international currencies are
considered fungible. 1 USD is equal to 115 JPY (Japanese yen). They are
interchangeable and hold the same value.
Perhaps the best way to think about
fungible tokens online is that they are standardized and they store value.
Non-fungible tokens are a bit different.
What
Is a Non-Fungible Token?
Non-fungible tokens (NFTs) exist in
the real world as well. Tangible NFTs include anything that is unique and
cannot be easily divided or interchanged with another item.
Real estate is a perfect example.
Generally, two homes rarely share the same exact value. Each home is unique in
some combination of aspects such as design, functionality, location, or age.
This is the main difference between
a fungible token and an NFT – NFTs are unique. While they may be designated
with a value, that value is affected by various elements. Other examples of
real-world NFTs include art pieces, used cars, antiques, trading cards, or rare
items.
Think about it this way: two people
own a first edition book printed in the 1850s. One person's copy has some
scratches on the front while the other person's copy has slight water damage on
the pages.
They can't be easily exchanged
despite being the same book. Both copies are going to be valued differently
based on their unique qualities. Make sense?
Fungible
and Non-Fungible Tokens Online
So, what do these examples look like
online? Here is the basic idea.
Digital
Fungible Tokens
Much like real-world currency, the
crypto world has its own interchangeable currencies. All of these are fungible
tokens that store a divisible and exchangeable value:
- Bitcoin (BTC)
- Litecoin (LTC)
- Ethereum (ETH)
- Cardano (ADA)
Just like you can swap USD for
any other foreign currency, you can do the same across cryptocurrencies.
For example, 1 Bitcoin is equal to about 15 Ethereum. Again, these are
divisible and interchangeable tokens.
Digital
Non-Fungible Tokens
NFTs online function is pretty much
the same way as unique items in the real world. Digital NFTs include:
- Digital artwork
- Unique video game skins
- Original videos
- Intellectual property
Many people wonder how digital
assets can become non-fungible. After all, anyone can save an image from the
internet onto their computer without paying for it.
While this is true, downloading an
NFT does not mean you own it. Let's quickly dive into this idea.
Non-Fungible
Tokens Explained
How can someone prove they own a
digital asset? While online users can download videos or save images, that
doesn't mean they own that particular piece of content.
Think of the real world. You can buy
a copied print of the Mona Lisa, but you don't own the real thing. The same
rings true with digital NFTs.
NFTs also use blockchain technology
to keep track of sensitive information. Blockchain is basically an online
ledger that provides information about assets, transactions, and
ownership.
If someone owns a house in real
life, they also have the deed to that property. Blockchain is the digital deed
to an NFT.
People may own NFTs for any number
of reasons, the same way people may own expensive items in real life. Perhaps
the item holds a sentimental value, or someone just likes a particular piece of
art.
Whatever the reason behind
ownership, an NFT holds a unique value. Hopefully, this gives you a better idea
of what an NFT really is.
Getting
Into the Crypto Game
Now that you understand the basic
concepts behind a fungible vs. non-fungible token, maybe you're considering buying an NFT.
Perhaps you're just interested in Bitcoin or another cryptocurrency.
Hopefully, this article has taught
you a little more about the online community. Whether you want to own digital
assets or invest in digital currency, now you can feel confident with your
knowledge of different online tokens.
Looking for more crypto advice?
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