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What is the difference between Fungible and Non-fungible Tokens?

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The tokens are all around us. You may not have realized it because we don’t call them that. We took them for granted because of how common they are. People are renewing their interest in understanding the token economy due to blockchain technology. Tokens play an important role in human-to-human socio-economic exchange.

Blockchain technology is changing the world as we know it, leading us to be more familiar with decentralized finance, non-fungible tokens (NFTs) and smart contracts. Each new technology disrupts traditional industries and markets. This time around, the difference lies in the scale of what’s possible.

The adoption rates of cryptocurrencies and NFTs are growing day by day. In these times, we have to learn about new concepts and ideas. This post is about fungible and non-fungible tokens. But first, what are tokens?

Tokens are a form of value

As human beings, we can “believe” that “something” has value. For centuries, we have exchanged one form of value for another. The barter system was the most common trading method we had. However, after a certain point it made things complicated. This was because there were too many items to buy, sell and trade. The magic of tokens and money arrived. It can be salt, livestock, rice, wheat, or anything else that is useful. So, anything we think is useful is a form of value. Tokens are the same.

Tokens today can mean many different things to different types of people. Tokens are different from ‘money’. Anyone can issue tokens. A government voted to political power by the citizens of a nation issues money. Many entities issue different types of tokens. Amusement parks, games, cinemas, online sites; all use physical or virtual tokens. This incentivizes people to use more of their products or services in exchange for real currency. However, issuing tokens without blockchain technology has its limitations as it would be easy to counterfeit. Thus, tokens without blockchain technology are not scalable to billions of people and transactions.

Some examples of tokens

Tokens are the way humans store, use and exchange economic value or proof. Some examples are:

Official documents such as driving license, birth certificate, educational qualification, etc.

    • Stocks, bonds, commodities (when not physically delivered) and financial assets
    • Daily currencies used to purchase goods and services. A good example is the Naira
    • Coupons, gift cards, redeemable points, etc. are created by companies to help you in the future.

Seen this way, the tokens are all around us. From the warranty card you received for your smartphone or laptop to your coffee subscription card, everything is a form of token. Your car is also a token because it provides you with a transport service when you need it. Likewise, so is the fuel that powers it.

The main reason we use tokens is for their social uses. Maybe you remember how you used slot machines or video games. As a child, games, and books are the usual favorite things. Why didn’t we realize this about tokens? Because they are all around us.
This will seem counterintuitive to you. This is due to how familiar we have become with using them through our apps and smartphones. Now let’s try to understand fungible and non-fungible tokens.

What are fungible tokens?

Tokens that are equal to each other are fungible. For example, let’s go back to our currencies. Each dollar or pound or naira or any other currency has the same value as the other. A unit of currency does not change its value. There is a reason we need it. Most of our thoughts are about money. We all know that.

The value of one bitcoin is the same as another bitcoin regardless of the circumstances of its use. This ownership of money and tokens helps us understand money as a form of social technology. All cryptocurrencies are fungible tokens.

While their market value fluctuates every second depending on how people buy and sell them as an investment or stock, each of them has the same value as the other. Think of it this way, all electricity generated is a form of fungible token because your electricity is the same as that of others, although costs vary by source and location. Hence, fungible tokens are interchangeable and divisible.

What about non-fungible tokens?

Put simply, non-fungible tokens are unique, non-interchangeable, and non-divisible. They are the same as real-world objects such as cars. The main difference is that they live on the blockchain. The blockchain stores the address of each non-fungible token. Its value lies in the eye of the beholder. For example, your smartphone is a non-fungible form of token. However, the blockchain does not yet store its certificate of ownership. You can still prove your property because you have a receipt from the store where you bought it.

Although, it is safe to bet that many consumer electronic devices in the future will store ownership certificates and related tokens on the blockchain. Only the owner can replicate a non-fungible token. Almost all real-world utilities are a form of non-fungible token. Devices, machines, works of art, intellectual property, etc. are all non-fungible tokens. Most of it’s not on the blockchain yet. Indeed, this is what the “tokenization” of everything looks like.

The vision is to put everything real on the blockchain and trade it 24/7. How and when do owners need to buy and sell different items. There are ways to realize this vision. Non-fungible tokens will revolutionize trading and commerce as we know it.

Conclusion

While tokens are already known to us, it is the blockchain that gives tokens their unique properties. For the first time in history, we are on the verge of allowing anyone to buy and sell whatever they want around the world. Imagine liquid markets, 24/7, for just about anything. Anything that has socio-economic value. So what do you plan to do? Start tokens or help others tokenize.

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