Crypto 101

Fungible vs. non-fungible tokens

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When you hear the word “blockchain,” the first thing that usually comes to your mind is cryptocurrencies. And this is understandable as this new means of digital payments is based exactly on this revolutionary technology that has become a buzzword of late. But if you dig a little bit deeper, you will see that blockchain can give us much more than that.

Security and immutability – these two features allow us to significantly diversify the usage of blockchain-based tokens. Just imagine, you can encode any data: national IDs, diplomas, birth certificates, drivers’ licenses, real estate data and so on. Once an international blockchain standard is authorized and accepted worldwide, there will be no more need for document translation and verification.

Non-fungible tokens present a technology that can make the sweet dreams of bureaucracy haters come true.

What are fungible tokens?

The term “fungibility” is not new. In the traditional economy, it refers to interchangeability or the possibility to change units of some commodity between each other – e.g., one dollar, one euro, one ounce of gold, one kilogram of rice, one seashell, etc. – these all are fungible items. If you borrow ten dollars from a friend, you can then return the same bill or a handful of coins with the same value.

When applied to cryptocurrencies, fungibility is the characteristic of all types of tokens that serve as a payment method in the system where they are used. Bitcoin, Litecoin, XRP, EOS, Ether, ERC-20 tokens – these are all examples of fungible tokens.

What are non-fungible tokens?

Non-fungible tokens (NFT), on the other hand, cannot be changed between each other. They are unique, just like snowflakes, each one representing a separate set of properties and features. This uniqueness leads to digital scarceness and thus a potential price growth in the future.

If you are looking for a real-world analogy, philately, a popular hobby of the past century, can provide you with the best example. Keen stamp collectors were ready to travel hundreds of miles and pay astronomic sums for a small piece of sticky paper that had a unique printing on it.

The popular Ethereum-based game Crypto Kitties was the pioneer of non-fungible tokens. Players could create their own digital pets, each with a unique set of characteristics. Aiming to repeat the Kitties’ success, many similar projects have since appeared, such as Blockchain Cuties (another Ethereum-based game) and Crypto Wizards on EOS.

CryptoKitties example Crypto Heroes

Crypto Kitties: create a dragon or even cucumber-like cat

The fundamental differences

Fungible and non-fungible tokens can be compared using the following features:

FeatureFungible tokensNon-fungible tokens
InterchangeabilityInterchangeable

Tokens of the same type can be exchanged between each other, just like usual fiat currency, such as euros or dollars.
Non-interchangeable

Tokens cannot replace each other, even if they have the same value.
UniquenessUniform

All tokens are identical to one another.
Non-uniform

Each token comes with a separate set of features that make it unique.
DivisibilityDivisible

Tokens can be divided into as small parts as you wish. You can borrow 0,5 USD or 0,0001 BTC and then return the same amount by parts.
Non-divisible

Tokens can’t be divided.
StandardERC-20

The well-known standard of the Ethereum Network. Examples of projects based on this standard: Binance (BNB), OmiseGo (OMG), Basic Attention Token (BAT).
ERC-721

The new standard based on Ethereum that allows unique tokens to be created. So far, CryptoKitties is the most popular use case of this standard.

Use cases for non-fungible tokens

Digitizing unique objects has a wide variety of use cases. If the blockchain technology is further adopted, in a few years we may see many areas of our lives literally changed upside down.

  • Collectibles and game objects

NFTs can represent any unique in-game assets that belong to the player (e.g., CryptoKitties that have already been mentioned above). Also, you can digitize unique elements of real-world collections such as old cars, stamps, and baseballs with autographs of famous players.

  • Copyright

Writers, musicians, photographers and other artists can claim their copyrights with the help of such projects as Binded, Proofstack, and Blocknotary.

  • IDs and certificates

Identity theft cannot be regarded with any seriousness until it touches you personally. The Equifax data breach in 2017 resulted in the IDs of many millions of people being stolen and who knows how many loans were given out to hackers by credit organizations.

Converting your national ID, drivers license, birth certificate, property ownership and many other documents to the digitized form on the immutable blockchain can help you protect your identity without having to rely on centralized institutions. Projects such as Civic and Blockpass are working on such products now.

  • Property titles

You can verify the ownership of any real-life object on the blockchain and thus protect yourself from scammers specializing in fake documents. Examples of such objects are works of art, buildings, jewelry, wines, and other rare and pricey items. Ubitquity is a good example of a project aiming to digitize property.

  • Fractional ownership of real objects

With different objects such as houses, exotic cars or pieces of art being tokenized on the blockchain, investors can diversify their portfolios by purchasing fractions of these objects. Would you like to own a piece of the Mona Lisa? Now it’s become possible with non-fungible tokens. Museums could tokenize their exhibits, let the public buy the shares, and expand their exhibitions with the help of the raised funds. Among the projects that offer such possibilities are BitCar and Blocksquare.

Fungible vs non-fungible tokens Crypto Heroes

Infrastructural services for NFTs

Non-fungible tokens are a pretty new branch even for such a young industry as the blockchain, but still, there are already some services and marketplaces dedicated specifically to work with them as follows:

Marketplaces:

Create your own non-fungible tokens:

  • 0xcert.org – a platform for creating and validating unique assets on the blockchain via NFTs
  • Counterparty – allows NFTs to be created based on Bitcoin
  • Mokens – design and create your own crypto-collectibles

Other services:

  • Bitcrystals – a platform for game developers and collectors aiming to utilize blockchain features
  • Codex Protocol – a blockchain-based registry of arts and other valuable collectibles
  • ZeppelinOS – a platform for creating and deploying secure smart contracts with an  ERC-721 implementation guide published on GitHub

Summing it all up

While fungible tokens represent the digitized form of traditional currency, non-fungible tokens are a step ahead towards improving our lives and facilitating different bureaucratic procedures. Although the technology itself is pretty young and raw, it has great potential and may grow into something substantial in the future.

One of the obstacles that may block NFT from further implementation is the technology behind it. Ethereum has many flaws, such as low capacity and a complex programming language. However, some solutions for creating non-fungible tokens on new blockchains like EOS already exist today and users often ask questions about Tron-based NFTs as well. So most likely, the technical issues will be resolved at some point and a digitized economy will be realized.


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