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Understanding The Difference Between Fungible Tokens & Non-Fungible Tokens

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Fungibilty has become one of those most used words in crypto, all thanks to the popularity of NFTs. Lots of people know the meaning of NFT as Non Fungible Tokens, but don’t know the meaning. Well I was one of those who didn’t know the meaning of fungibility or fungibility tokens before I encountered the word NFT. One of the advantages of the Leo finance community, you learn a lot from here.

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Have you ever thought of the facts that differentiate Non-Fungible tokens from Fungible tokens. When something is Fungible what comes to your mind? Well, fungibility means that something is interchangeable, you can exchange it for another of its exact same kind and it will still have its value. Let’s put it this way, imagine you have a $100 in California, you travel to let’s say Nigeria and deposit the $100 in your Domiciliary account. If you travel to Dubai, and you want to withdraw $100 from an ATM, the ATM will give you a $100. Mind you the $100 you withdrew from the ATM in Dubai is not the same $100 you got from California and deposited it in Nigeria.

They are completely different, but who cares as long as you get a $100 note, you don’t care about the initial $100 note you deposited. This is because they are interchangeable and have the same value. Now you have $100 which you got from California, deposited it in Nigeria and withdrew it from Dubai, because a $100 is fungible. The chances of ever coming in contact with that same $100 note you deposited in Nigeria is very slim, except you put a mark on it, you can’t claim proof of ownership of that exact $100 because the moment it goes into the banking system, it circulates and goes to another person.

But let’s look at a special baseball card signed by a baseball star specifically to someone with the person’s name. If that person keeps the baseball card in a fixed deposit box in London, he can’t travel to China and collect it. Except it gets shipped to them, and when it gets shipped to them, they are going to get that same baseball card deposited in London. Not a different one, not a baseball card that looks like it or some counterfeit, but the exact card. Now that is Non-fungible, it can’t be interchanged or replaced, if the card gets stolen or destroyed, they can’t be another card like it with exact same signature.

Now this is what we have in cryptocurrency but in the form of tokens. Few days ago I did a post to differentiate between coins and tokens you can check it here. It’s right to know that right now in trying to differentiate between Non-Fungible Tokens and Fungible Tokens, we can agree in this context that all cryptocurrencies are Fungible tokens.

Fungible tokens are Interchangeable, not unique, divisible and some of them have their own blockchain. For instance Bitcoin, Ethereum and Hive, you can give some one 1 Bitcoin, and that person can repay you back from another person’s wallet giving you 1 Bitcoin. Doesn’t matter if it’s the exact same Bitcoin you gave that person that was given back. 1 Bitcoin is not unique from another 1 Bitcoin, they are all the same, the same value and code. You can have divisible parts of bitcoin known as Satoshis.

Non-Fungible tokens not interchangeable, unique, not divisible (not fully true) and doesn’t have its own blockchain. For instance, let’s use the bored ape, there are 10,000 unique bored apes and all have different features that differentiates them from one another. You can not interchange one bored ape for another. Bored Ape #1 is completely different from Bored Ape #2 and so on. They are not divisible, but fortunately there is a way turn your NFTs into divisible parts by creating attachable tokens linked to the NFT.

Fungible tokens can be traded on exchanges, that’s why you can place a sell or buy order and get the order executed instantly. But Non-fungible can’t be traded on exchanges, they can only be traded on a market place. You have to wait for the seller to agree on what price to sell it, or wait for a buyer to agree with your price before the order is executed.

Fungible tokens can be used as a currency for transaction, but Non-Fungible Tokens are either collectibles, arts, media, or digital properties.

Posted Using LeoFinance Beta