Fungible vs non-fungible vs semi-fungible tokens
Tokens are widely used in the blockchain ecosystems where it’s used in payments, trading, exchanging, proof ownership, and many different purposes. We will discuss what are tokens in blockchain in brief.
What are tokens
Tokens are digital assets that are created and managed on a blockchain platform such as Ethereum, where tokens differ from coins.
Coins
Coins are the native blockchain currency that is used to pay for the runners of the consensus algorithm that makes the blockchain works in a decentralized way.
- Bitcoin blockchain native coin is BTC
- Ethereum blockchain native coin is ETH
- Binance Smart Chain native coin is BNB
Tokens
Tokens are built on top of a native blockchain and not the native currency of the blockchain.
- Tether: USD-based stablecoin built on top of Ethereum
- BUSD: USD-based stablecoin built on top of Binance Smart Chain
- CryptoKitties: non-fungible tokens built on top of Ethereum
A blockchain must have only one coin, and it can have any number of tokens, and tokens can be of different purposes.
You can check out what is Tokenomics, and the type of tokens from the following article
Fungible tokens
Let’s start with fungible tokens, but what is the meaning of fungible?
Fungible refers to the property of an item or asset that can be easily interchanged or replaced with another item of the same kind, without any noticeable difference in value or utility. for example, if you are going to buy a cake for 10 dollars it doesn’t matter which 10$ paper you took, since they all have the same value.
Fungible tokens in the blockchain like the money we use now, all paper money has the same value, and there is no difference between an old 100$ and a new 100$, they have the same value.
Fungible tokens are used for this purpose, used for exchanges, and trading purposes on the blockchain, it replaces paper money in the blockchain space.
All cryptocurrency tokens are types of fungible tokens, like Uniswap, link, and DAI.
Non-fungible tokens (NFTs)
Now, let's see what are non-fungible tokens.
We said in fungible tokens that fungible means interchangeability between assets, so non-fungible tokens can not be interchanged, each one has its own value.
To take an example from the real world, you can think of it as Real estate. Each house has its own value, you can’t change between houses.
Another example is mobile phones, each phone has its own images, videos, games, and data. You can’t interchange your phone with another phone even if it's from the same type since your phone data only exists in your phone.
Now you may ask, how can we use non-fungible tokens (NFTs) in the blockchain?
Blockchain stores data in a distributed ledger, you can think that blockchain is a big database that contains all pieces of information.
How can we build an application using only one database, in Web2 each web application has its own database, which is used to get user information, but in Web3 the case differs, as We already mentioned that blockchain is like a big database that stores all information.
Since there is only one database, developers needed to achieve a solution for building different applications on the blockchain, this solution was NFTs.
As we mentioned before that NFTs are unique tokens that can’t be interchanged, so the creators of the application that is built on top of the blockchain can make an NFT collection that represents the data of the users that are using there application.
Blockchain games such as Cryptokitties and Axie Infinity, use NFTs to represent game characters, lands, runes, and all game features.
Of course, NFTs are not used only in games, it's used to prove ownership.
If you have the NFT, you can access our service. and you can not use our application without having the NFT.
Semi-fungible tokens
We discussed fungible and non-fungible tokens, what are semi-fungible tokens?
Illustrating semi-fungible tokens may be difficult, but we will try to make things easy.
We will take Egg Cartons as our example of semi-fungible tokens.
let's say that you bought an Egg carton containing 10 Eggs, and your friend also bought an Egg carton containing 10 Eggs, Now I want to ask two questions.
Are the two cartons interchangeable?
Are the two cartons have the same value?
The answer is, yes they are interchangeable, but the value differs since Eggs don’t have the same size. this is a semi-fungible token.
You can change the cartons with each other, but you can’t change Eggs since Eggs may have different sizes.
NOTE: This is just an example to illustrate the meaning of the semi-fungible, I am trying to clear the point not else.
Semi-fungible tokens are a relatively new concept in the blockchain and cryptocurrency space. They can be both fungible and non-fungible tokens, where they have the features of both of them.
Let's take an example of semi-fungible tokens in the blockchain space.
Imagine we have a game on the blockchain, and you can buy some mystery boxes, these boxes can have a random game character, random weapon. This approach is comman in normal games.
Each box has a fixed price, and players can interchange these boxes, before openeing it, so it acts like a fungible tokens. But once the boxes are opened they loses fungibllity feature and became non-fungible tokens (game character and weapon).
Semi-fungible tokens are discussed in different scenarios, and a lot of the scenarios are valid, as the concept is rather general, and can be discussed with more than one point of view.
Recap
- Each blockchain has one coin and any number of tokens
- Tokens are used for different purposes
- Fungible tokens are interchangeable and used in trading and exchanging like BUSD and TUSD
- Non-fungible tokens are non-interchangeable and are used to prove ownership like Cryptokitties NFTs.
- Semi-fungible tokens have fungible and non-fungible tokens features
