This is how fungible and non-fungible tokens differ

Especially in the last few years, fungible and non-fungible tokens have attracted public attention. They turned out to be an attractive investment opportunity and revolutionary technology for blockchain enthusiasts, companies and investors alike.

However, price volatility has often clouded the true potential of these technologies, which have the potential to impact and disrupt the world’s largest industries. But why exactly is that?

Let’s take a step back. In this article, we take a closer look at the basics, differences and potential of fungible and non-fungible tokens so that you can make informed decisions in the crypto world.

What are fungible and non-fungible tokens?

The technology of Fungible Token (sometimes colloquially called coins) has existed since the birth of Bitcoin, which happened in 2009. The pioneers among the Non-fungible projects However, they only started 5 years later, in 2014, on the Ethereum blockchain.

Both forms of tokens are now central terms in the crypto industry and serve (at least partially and for many investors) as an investment vehicle in a crypto project or as shares in a company. But even when they are of the highest interest to investors, they often bring benefits to holders that far exceed those of stocks and other traditional investments.

Because they promise investors not only profit growth and returns, but many other advantages that can only be realized through blockchain technology. Whether non-fungible or fungible, the majority of crypto projects thrive on precisely these advantages, which benefit the community and the owners.

Crypto projects are very creative. Among other things, they want to give investors and owners voting rights for government decisions, access to an exclusive community, airdrops, returns through staking, access to apps and other benefits. How exactly is that possible?

Smart Contracts: The underlying technology

Fungible and non-fungible tokens exist as so-called smart contracts on the blockchain. These smart contracts can be thought of as computer programs (code) that are called under certain conditions and perform predetermined functions.

The immutability and transparency of the blockchain is elementary here and contributes to the revolutionary use cases of the tokens. Even though Bitcoin is considered a fungible token in a broader sense, the technology of fungible and non-fungible tokens was first brought to life on the Ethereum blockchain. Meanwhile, every advanced blockchain, such as the Binance Smart Chain, has similar technologies.

In the case of the Ethereum blockchain, it looks like this: The smart contract technology behind fungible tokens is called ERC20. The newer technology for the non-interchangeable counterpart is called ERC721. In the case of the Binance Smart Chain, they are called BEP20 and BEP721. These are so-called token standards.

The difference between fungible and non-fungible tokens

Fungable tokens

Fungible tokens are usually cryptocurrencies. These are ideal as a means of payment, which has many advantages over fiat currencies. These benefits include instant and cost-effective transactions, a simple and globally accessible financial system, and transparency and accountability through blockchain technology.

The name already reveals the decisive property of the token. Fungible means something like “replaceable” in German. But what does it exactly mean? Let’s look at an example to clarify:

You have 3 BNB in ​​your Binance account and a family member sends you 2 more BNB to this account. There is now a total of 5 BNB in ​​your virtual wallet. It is no longer possible to identify which BNB came from whom. They are interchangeable and indistinguishable from each other.

In addition to cryptocurrencies and tokens, securities, foreign exchange or fiat are other good examples of other interchangeable (or fungible) items.

Non-fungible tokens

While fungible (exchangeable) tokens such as Bitcoin or BNB are fantastic as a means of payment, the strengths of non-fungible tokens are evident in other areas. Non-fungible means “not interchangeable” in German. In doing so, they directly reveal their main feature.

Because each NFT only exists once and can therefore be assigned to exactly one owner. This novel form of digital assets can therefore best be understood as digital proof of ownership on the blockchain.

Example: You have an NFT X in your wallet. If you receive another NFT from this collection, you can use the blockchain to find out exactly which one it is. They are (among other things) identifiable by their so-called TokenID, which you can find on well-known block explorers such as etherscan can see.

The imagination knows no bounds here, as NFTs can be used as proof of ownership for a wide variety of items. This is precisely why they have the potential to penetrate many sectors of the world. Known use cases are:

• digital art and music ,
• game objects and items,
• tickets to events,
• access to exclusive communities,
• subscription services,
• real estate on the blockchain,
• and much more.

Further questions?

Especially for beginners, the crypto market is unclear and confusing, down to downright dangerous. But if you want to be successful in the crypto market, you have to be very familiar with the subject. This is the only way to make well-founded decisions.

That is why there are numerous platforms in the crypto space that offer a well-founded further education area. So if you are interested in crypto education, you can take a look at the Binance Academy, for example. There you will find answers to the most important questions about Bitcoin, Blockchains, NFTs, Metaverse, Gaming and much more.