The concepts of fungible and non-fungible are not new to economics. The Roman Empire used coins as fungible tokens for buying goods. Casinos, game arcades, garages, and so on, use fungible tokens that are interchangeable with money. In the crypto world, the concept of tokens remains the same: the representation of value, or something of value, within its ecosystem.
Introduction
Everything on the blockchain is a token. But, not all tokens serve the same purpose. The two basic token types are fungible and non-fungible. On the Ethereal, and a few other blockchains, tokens are also smart contracts and accounts.
Differences
The technical differences, however, between fungible and non-fungible tokens lies in the content they store. Fungible tokens — like Bitcoin — store value. Non-fungible tokens store data like an academic title or an artwork.
These technical differences are defined in protocols; which are standards used by developers to build crypto applications and services. For example, the ERC-721 protocol defines NFTs and the ERC-20 protocol defines crypto-currency.
Fungible Tokens
Fungible tokens are interchangeable, divisible and not unique. They represents a specific value. Currency is a fungible token. Fungible tokens, like Bitcoin or Ether, base their value on technological innovations and economic adoption, offering more robust fundamentals to the shrewd investor.
For example: if I were to borrow $10 from a friend, I can repay my friend with a different 10 dollar bill, two five dollar bills, or any combination of denominations.
Non-Fungible Tokens (NFT)
Non-fungible tokens are unique and not interchangeable, and point to a valuable asset and establishes the rights ownership. The value of an NFT is based on demand rather than fundamentals. For example, if an NFT is a deed to a painting, then the value of the NFT is the painting. And, the value of the painting is based on the demand for that painting.
NFTs are a type of deed or title of ownership of a unique, non-replicable item. For example, the title to my car is a real-world, non-fungible token. An NFT can also be a smart contract between two or more people.
For example: An airline ticket, for example, is a physical-world, non-fungible token because it represents one seat for one person from a limited number of seats on a specific flight. In the crypto-world, the airline ticket would be purchased using fungible tokens, like Bitcoin or Ether, and an NFT would be returned as the ticket.
Additional information can also be stored within the NFT, such as the seat number, flight number, date, and destination, and restrictions can be programmed into the NFT — such as, business class or first class seat assignments.
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