NFT stands for Non-Fungible Token. NFTs are unique tokens that can have different characteristics from one another.
What does Fungible mean?
Fungible by definition is “that which may be exchanged for something else of the same kind”. This is a word that one might not have heard until recently. It has been on the rise since 2008, so maybe you have seen it before, but not understood its meaning.
Fungible is an example of an adjective derived from the noun fungibility which means “qualities of being mutually interchangeable or replaceable especially as units of measure (example: “one dollar bill can replace another dollar bill”), and interchangeability (example: “the idea that all things are essentially equal”). Fungibility is also used to refer to how goods and units of currency may be melted down and reused as raw materials”.
So, what if we add “non” before fungible?
NFTs can represent uniquely identifiable things in the real world, such as shares of stock or collectibles (such as Beanie Babies).
But most often they refer to digital goods like Crypto Kitties, collections of cards in a game like Hearthstone, and even levels that take time and work to acquire in a massively multiplayer online game like RuneScape.
OpenSea has Non-Fungible tokens for sale on their platform!
Fungible Tokens have more uniform characteristics. If they are traded and exchanged then they become Non-Fungible Tokens. NFTs are all about distinguishing themselves from others in their group, whereas fungibles tokens don’t have that ability.
It is the uniqueness of Fungibles that makes it easy to represent and transfer ownership without requiring a third party to verify authenticity or value and without significant overhead.
Differentiating Fungibles that make up a series or collection is done by assigning a unique ID to each item so that each item can be identified individually and tracked as it changes hands.
Fungible tokens are interchangeable with one another. Any unit of a fungible token is identical to any other unit of that same token type while Non-Fungible tokens are unique and distinguishable from others in its group. Each one can be traded on its own terms.
CryptoKitties are Non-Fungible Tokens. Each cat is uniquely identifiable and can have different characteristics compared to others of its kind. An example of a Non-Fungible/Fungible Token is the ERC721 standard and ERC20 standard:
On the Ethereum blockchain, tokens can be either fungible or non-fungible. If a token is fungible, then any unit of the token is identical to another unit of that same token. It’s like coins or dollar bills: each dollar bill is indistinguishable from any other dollar bill. If a token is non-fungible, then each token is unique and distinguishable from other units of that same type of token. If you have a collection of baseball cards, then each one is unique and distinguishable from the others.
Every ERC20 token is fungible (has uniform characteristics), because every unit of an ERC20 token is interchangeable with every other unit. Many NFTs are non-fungible.
ERC721 tokens, on the other hand, are designed to represent unique digital assets. Each ERC721 token represents a separate and distinct asset from another, so each one can be traded on its own terms. Each one is unalterable and binds to a single owner address; once it’s transferred, it can’t be transferred again. Each one is also traceable, and its history of ownership is publicly available.
To learn more about blockchain, check out this article.