Have you recently come across bizarre news that Jack Dorsey, CEO of Twitter has sold his first tweet for $2.9 million? You might have also heard that a digital artist Beeple has sold his artwork for more than $69 million. Isn’t it fascinating? All such news is making people curious about what exactly NFTs are and why these are grabbing headlines. If you know a little about cryptocurrencies then you might know that tokens rule the digital currency world. Now, these tokens can be fungible or non-fungible. NFTs are basically “Non-Fungible tokens”. So, in this post, we’ll find out the difference between fungible and non-fungible tokens to help you better understand NFTs.
What are Fungible Tokens?
Fungibility can be defined as the ability of a good or asset to be interchanged with other individual goods or assets of the same value or type. For instance, one person’s $10 bill will hold the same value as another $10 bill. It means that each fiat currency or commodity will have equivalent value when compared to other units of the same currency or commodity. Now let’s take an example. Suppose person A borrows a $20 bill from another person B. Now person A can repay this in form of two $10 bills because that is equal to $20. Similarly, cryptocurrencies such as Bitcoin, Ether, or ZCash- are also fungible tokens. It means that one Bitcoin is equal to another Bitcoin. Fungible tokens and assets can be easily exchanged or traded. So, fungibility is the fundamental feature of all currencies.
What Is a Non-Fungible Token (NFT)?
Non-Fungible Tokens started gaining public attention after the popularity of crypto kitties, a virtual cat collectible game. In simple words, non-fungible tokens or NFTs lack fungibility because these tokens represent unique, collectible items that cannot be exchanged. These are cryptographic assets that exist on a blockchain with unique identification codes. It is because of their uniqueness that NFTs cannot be split or exchanged for other non-fungible tokens of the same type. It is a distinct digital asset that represents real-world objects like art, videos, music, GIFs, or in-game items. NFTs are created, bought, and sold online. NFTs only exist digitally and the buyers get a digital recording of ownership of a token in their crypto/digital wallet. The NFT marketplaces are the special platforms that are created for minting, buying, and selling NFTs.
NFTs exist on a blockchain, the same technology that has made cryptocurrency a reality. However, unlike cryptocurrencies, NFTs are unique. It means that one NFT cannot be exchanged with another token of the same type. If someone borrows an NFT, the person has to return the very same token. For example, if Person A borrows a car from person B, then person B cannot return a car of a different make and model. Even if person B returns the same make and model as the original car, it is not acceptable.
Fungible vs. Non-Fungible Tokens
The basic difference between fungible and non-fungible tokens is exchangeability. Fungible tokens such as the dollar of Bitcoin can be exchanged with any other token of the equivalent kind. Non-fungible tokens, on the other hand, are unique and non-interchangeable. It is possible to divide fungible tokens into smaller units but NFTs cannot be divided because these unique cryptographic tokens cannot be replicated. NFTs are becoming popular for buying and selling digital artwork.