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Fungible vs Non-Fungible Tokens: What Is The Difference?

Are you invested in cryptocurrencies or have you bought yourself an NFT? If you haven’t then you have come to the right place as today we will give a…

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This article was originally published by Midas Letter

Are you invested in cryptocurrencies or have you bought yourself an NFT? If you haven’t then you have come to the right place as today we will give a comparison of fungible vs non-fungible tokens: what is the difference? Even if you have invested in any of those, learning the difference between the two will help you make a much better and well-informed decision going forward and get ahead of the pack. This becomes much more important as the future is going to see a huge influx of people and mass adoption of blockchain technology in general and NFTs, and cryptocurrencies in particular. On top of that, if you’ve ever wondered how to invest in NFT, then you have come to the right place.

Fungible vs Non-Fungible Tokens

The difference between the two is very simple. Think of the fungible tokens as the money you carry in your wallet except they are digital and decentralized. To put it simply, fungible tokens are interchangeable for example, if you own 1 BTC and your friend also owns 1 BTC, then these two are interchangeable and would hold the same value. Just like how a USD 10 bill in New York would have the same value as a USD 10 bill from Los Angeles and can be interchanged. Fungible tokens differ from conventional currencies in a way that they exist over the blockchain and are decentralized.

Non-Fungible Tokens(NFTs) are also tokens but they differ from fungible tokens in a way that they are not interchangeable. Every NFT is unique and can not be equated to any other NFT, even if they are from the same collection.

Fungible tokens are a store of value as 1 BTC is equal to 1 BTC everywhere across the globe. Whereas Non-Fungible Tokens are a store of data, i.e. they store all the information about it like its creation, blockchain data, history of ownership, etc. This is what gives it a unique identity.

Fungible tokens do not have any real-world assets, either tangible or intangible associated with them. Non-Fungible Tokens on the other hand can have a tangible or intangible asset like intellectual property attached to them. On top of that, fungible tokens are divisible while non-fungible tokens can not.

One more major difference between fungible and non-fungible tokens is that while most of the fungible tokens exist on their own blockchain, such as BTC has its own blockchain, and so does ETH. NFTs on the other hand are ERC-721 standard tokens and exist on some other blockchain such as Ethereum, Solana, etc. It is important to understand that not all cryptocurrencies are tokens. Tokens are inherently built on some existing blockchain, like the majority of the altcoins in existence, today are built on Ethereum blockchain and are ERC-20 standard.

Fungible Tokens

Non-Fungible Tokens

1. They are interchangeable 1. They are unique in nature and can not be interchanged.
2. They are a store of value 2. They are a store of data
3. The tokens are built mostly on ERC-20 standards 3. The NFTs are ERC-721 standard tokens
4. Divisible into smaller parts 4. NFTs are indivisible and only have value as a whole.

Now that you know about the differences between fungible and non-fungible tokens, let us understand what are the pros and cons of investing in NFTs.

Pros and Cons Of Investing In NFTs

Pros

  1. If you are an artist like a musician, painter, content creator, etc. you can connect directly with your buyers, fans, followers, etc. using NFTs and even earn royalties on the NFT of your work exchanging hands or being sold further without the need for any middlemen.
  2. People have made hundreds, thousands, and millions of dollars by investing in NFTs in many different ways and if done with proper research and timing, you can also earn a hefty profit from the NFT market.
  3. NFTs are going to be a big thing as the world moves into the Metaverse as stated by some of the biggest tech companies in the world, so investing in them now might be like investing in Amazon when it was just starting out.

Cons

  1. NFTs and the entire cryptocurrency market is highly volatile and a lot of people have lost a lot of money including their lifes savings in these markets as seen during the recent LUNA crash.
  2. Many people still do not believe in NFTs as what is the point of owning an original of something when hundreds or thousands of copies of it can be made online. Even though it can be related to traditional art. For e.g. people can produce a hundred or thousand different copies of Leonardo Da Vinci’s Mona Lisa, but the original would not lose its value.

Since NFT is a new technology, it is not clear what path it would take in the long run and that is what makes it a risky investment.

Conclusion

Fungible or non-fungible, tokens are here to stay and will eventually make the world more decentralized in nature. It is just for us to see how long it would take to happen. But as of now, they are both risky investments and you should always do your own research before investing in either of them.

Original article: Fungible vs Non-Fungible Tokens: What Is The Difference?

©2022 Midas Letter. All Rights Reserved.


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