NFT 101 — Fungible vs Non-Fungible? ERC-20 vs ERC-721 vs ERC-1155?

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The potential of blockchain technology goes far beyond digital assets like cryptocurrencies. Users and companies can place data (such as their personal IDs, certificates, company property data, registration data, real estate data, and other information about real-world assets) on the blockchain network. The source of all Non-Fungible tokens, will undoubtedly play an important role in the future development of the blockchain economy.

First of all, let us clarify the difference between Fungible Token (FT) and Non-Fungible Token (NFT).

What is a Fungible token?

Most of the crypto assets that have been traded for a long time, such as BTC and ETH, are fungible tokens. For example, the U.S. dollar is also a fungible token.

U.S. dollars can be exchanged, even if the serial numbers are different, the replacement will not be affected. If the value is the same, the denomination of the note will not differ for the holder.

The same is true for fungible tokens. There is no difference between a Bitcoin of the same type and another Bitcoin, with the same specifications and uniformity. In the transaction, you only need to pay attention to the number of tokens handed over, and its value may change according to the time interval of the exchange, but its essence has not changed. Fungible tokens are tokens that can be replaced, are unified, and can be divided into infinity.

Fungible tokens are very convenient to use, but things with actual value in real life are irreplaceable, such as a contract, house property rights, works of art, birth certificates, etc. Therefore, Non-Fungible tokens came into being.

What is a Non-Fungible token?

Collectible games such as CryptoKitties use new Non-Fungible tokens. NFT originated from EIP-721 (Ethereum Implementation Proposal 721) at the end of 2017. Non-Fungible tokens contain identification information recorded in their smart contracts. This information makes each token unique and cannot be directly replaced by another token. They cannot be exchanged for one, because no two NFTs are the same. In addition, Non-Fungible tokens are also inseparable, just like a part of a concert ticket cannot be given to others, a part of the ticket is not valuable and cannot be exchanged.

The unique properties of non-fungible make it usually linked to specific assets, which can be used to prove the ownership of digital items (such as game skins), and even the ownership of physical assets. It is mainly used in the field of games and encrypted collectibles.

The big difference between Fungible Token and Non-Fungible Token is the use of different contract interfaces. The former is ERC-20 and the latter is ERC-721.

What is ERC-20?

The ERC-20 protocol is an earlier and more popular token specification protocol on the Ethereum blockchain. If both tokens on the Ethereum platform are issued with ERC-20, they can be exchanged freely. ERC20 is a standard token interface, which stipulates its basic functions and is convenient for third parties to use.

The open source system makes the ERC20 standard simple enough to issue an ERC-20 token in 5 minutes. ERC-20 tokens are subject to the orders of the same set of token contracts, which means that all tokens in the ERC-20 protocol can easily realize functions such as transfer, request, and approval, but their functions also have limitations.

What is ERC-721?

Compared with ERC-20, ERC-721 protocol has more functions and more advanced technology. This protocol is the first standard for NFT digital assets of non-fungible tokens in Ethereum, and it is applied to projects such as CryptoKitties and Decentraland. The ERC721 standard was created and published by Dieter Shirley, CTO of CryptoKitties. Dieter Shirley is one of the founders of NFT.

Although ERC-721 has fewer use cases than ERC-20 and its functions are still for exploration, the advantage of assets under the 721 agreement-paintings, bonds, houses or cars, is that it can guarantee the safety of ownership and the transfer of ownership. In addition, ERC721 can also facilitate the tracking, trading and management of real assets trading and management, etc. With the continuous popularity of game virtual assets, 5G and VR continue to popularize, equipped with blockchain technology, the 721 protocol has a bright future.

In addition to ERC-721, the future development of blockchain will not leave the growth of another protocol-ERC-1155. The cross-network compatibility of ERC-1155 is undoubtedly what the cryptocurrency industry urgently needs.

What is ERC-1155?

Compared with ERC-20 and other standards, the ERC-1155 token protocol standard stands out in how it is compatible across chains. So far, most of the users’ assets can only be used on the Ethereum blockchain. However, the ERC-1155 standard also makes their assets compatible with other ecosystems. The ability to operate across multiple blockchains seems to be the only way out.

How does ERC-1155 work?

ERC-1155 uses local Enjin coins to support these custom tokens, which can ensure that all assets created by this method have a guaranteed value, which can be obtained by using the local “melting” feature in the Enjin wallet to make tangible value.

ERC-1155 is very different from traditional tokens and cannot be destroyed directly. On the contrary, unless the original developers regularly buy back tokens, they are usually still in circulation. ERC-1155 is positioned as a more specific token standard, because any asset can be created and destroyed at any given time on this standard.

The resulting benefit is the scarcity of tokens. There is almost no scarcity in the ERC-20 agreement. Under the ERC-155 agreement, the destruction of assets can reduce circulation, improve overall scarcity, and provide a type of token agreement that is different from traditional options.