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 proved 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 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) have been around since the birth of Bitcoin, which happened in 2009. The pioneers among 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 greatest interest to investors, they often provide benefits to holders that far exceed those associated with stocks and other traditional investments.

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

Crypto projects are very creative. Among other things, they want to give investors and owners the right to vote on government decisions, access to an exclusive community, airdrops, returns through stakes, 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 blockchain is fundamental here and contributes to the revolutionary use cases of tokens. Although 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, any advanced blockchain, such as 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-fungible counterpart is called ERC721. In the case of Binance Smart Chain, they are called BEP20 and BEP721. These are so-called token standards.

The difference between fungible and non-fungible tokens

Swap 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 defining characteristic of the token. Fungible means something like “replaceable” in German. But what exactly does that 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 currency or fiat are other good examples of other exchangeable (or exchangeable) items.

Non-Fungible Tokens

While fungible tokens such as Bitcoin or BNB are great as means of payment, the strengths of non-fungible tokens are evident in other areas. Non-fungibel means “not replaceable” in German. Thereby they directly reveal their main features.

Because each NFT exists only once and can therefore be assigned exactly one owner. This new form of digital assets can therefore best be understood as a 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 can be identified (among other things) by their so-called TokenID, which you can see on well-known block explorers such as Etherscan.

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 for events,
  • access to exclusive communities,
  • subscription services,
  • real estate on 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 need to be very familiar with the subject. This is the only way to make informed decisions.

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

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