The Difference Between Fungible And Non-Fungible Tokens

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Dmitriy

8 Dec 2022

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Currently, the demand for blockchain projects lies not only in the prospects for profitable investments in cryptocurrency and the direct use of the blockchain to meet needs that centralized solutions cannot satisfy or do so inefficiently. In particular, we are talking about tokens, which are of two types: fungible and nonfungible.

And if the wave of popularity of the former has already subsided somewhat, the latter ones have been sold for tens and hundreds of thousands of dollars over the past few years (let's recall at least the iconic Banksy piece, Love Is In The Air , which was bought for $12.9 million in 2021). Would you like to repeat the success of Banksy and other significant players in the NFT market? Just get comfortable and start reading our article about the fungible vs non fungible tokens comparison.

What Are Tokens?

A token is a digital asset operating on crypto coins' blockchain that guarantees the obligations of a blockchain project (not necessarily the same one) to its owner. In fact, this is an analog of shares on the stock exchange, implemented in the world of cryptocurrencies.

In practice, tokens are records in a distributed ledger. Their management is implemented using smart contracts, which store the values ​​of their quantities on the accounts of the owners. Owners get access to tokens through special applications that use an electronic signature.

Role of tokens

In terms of benefits for token holders, they provide them with complete freedom of investment, not limited by government laws, economic crises, etc. An investor does not need a bank account to buy tokens. Thus, buying the "right" tokens can bring a good profit to their owners in the long run.

However, tokens do have some disadvantages. The fact is that because of the mass popularization of the blockchain and projects based on it, it is really difficult to find a project that would not be a scam.

Therefore, it can be difficult for beginners who only comprehend the features of the cryptocurrency market to find assets that will not lose their external market value after several months or years (the significance of a specific period depends on the chosen investment strategy).

How Are Tokens Different from Cryptocurrencies?

Unlike cryptocurrencies, tokens do not have their own blockchain and operate on the basis of generally accepted standards. Also, tokens can be issued, transferred from wallet to wallet, and managed completely centrally.

Note that the market value of tokens, unlike traditional (non-digital) assets, is influenced by a wider list of factors in addition to supply and demand. In particular, we are talking about the release of additional tokens, connection with other assets, etc.

Thus, it can be concluded that cryptocurrencies can be considered tokens, but not all tokens can be considered a cryptocurrency. Below, we propose you consider the difference between nonfungible and fungible token meanings.

What Is a Fungible Token?

So, what are fungible tokens?

The history of tokens in the blockchain world began with fungible tokens. A fungible token is a standardized record in one of the blockchain blocks, and, as a rule, there can be a lot of such records.

For example, each individual bitcoin is an exact copy of another bitcoin, which makes it possible to compare them with fiat currency. In general, all cryptocurrencies are typical examples of fungible tokens. Indeed, each crypto coin has the same value as any other crypto coin of the same type at a particular moment in time.

What are fungible tokens used for?

Fungible tokens can be used to make purchases and any other financial transactions. In general, this is an ideal tool for payments when traditional fiat currencies are not possible (or inconvenient) to be used for some reason.

Examples of fungible tokens

The most well-known fungible token examples are Bitcoin, Ether, and Litecoin. In general, fungible tokens of a particular project are units of any of its internal cryptocurrencies.

What Is a Non-Fungible Token (NFT)?

And what is a nonfungible token? How do they differ from fungible ones?

An NFT, or non-fungible token, is a unit that acts as a blockchain-based digital version of any unique item. Usually, these are paintings, photos, videos, music, gifs, that is, any content that can be considered unique. NFTs are of particular interest to collectors, gamers, and art lovers, and can be bought or sold through auctions.

In recent years, NFTs have become so popular that renowned web resource Harper Collins named it Word of the Year for 2021. Indeed, as we indicated at the beginning of our article, some representatives of the NFT world manage to sell them for hundreds of thousands and even millions of US dollars.

What are non-fungible tokens used for?

NFTs are intended to signify the ownership of some digital or non-digital unique asset. That is, the owner of the NFT becomes the legal owner of the object it contains.

Examples of non-fungible tokens

As you could understand, NFT can digitally represent any asset, including artworks and real-life objects like real estate, antiques, and so on. Other popular examples of NFTs are different in-game items, digital and non-digital collectibles, domain names, event tickets, tweets, etc.

How to Create, Buy, and Sell Non-Fungible Tokens on Velas Blockchain?

The Velas team positions this blockchain as an ideal solution for creating, selling, and buying NFTs. To do this, Velas developers have provided their users with minimal commissions (a fixed commission is only $0.00001 per transaction), high speed of their Finality (only 1.2 seconds), as well as high performance (50,000+ transactions per second). The blockchain itself is based on a hybrid consensus of Delegated Proof-of-Stake (DPoS) with Proof-of-History (PoH).

The Velas blockchain project has combined the best features of Solana and the specially designed Velas EVM . Using Velas, developers can integrate any NFT functionality, from items to global marketplaces for creators of unique content. Velas also provides all the necessary functions to create NFTs . And finally, it provides developers with staking functionality, which can be integrated into a specific Velas-based project.

To buy or sell NFTs, you can use any of the NFT marketplaces located in the Velas ecosystem (for example, on Sparkies or GPNFTs ). As for creating your own NFT on Velas, we recommend that you check out this step-by-step guide .

Conclusion

We hope, now you understand the fungible vs non-fungible tokens difference and are ready to decide which of these types of tokens is right for you to invest in or, conversely, create. If you are ready to move on to the next step and are looking for a reliable blockchain for all this, pay attention to Velas.

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