Fungible and Non Fungible Tokens explained
Today’s article is a quick word about tokens. At the heart of blockchain technology, tokens enable most of today’s applications.
Web3 is a decentralized world where software is run by the people who use it. It's made up of dApps (decentralized applications), apps that run on the blockchain, and what makes web3 so exciting is how the dApps run: they're decentralized, which means they don't rely on a central server. Instead, their code runs in a virtual machine (VM) on every node or computer, that's part of the network. The VM that runs the dApp is called a smart contract. A smart contract can be written in any language that compiles to EVM bytecode, like Solidity.
There are two main types of tokens used in smart contracts: fungible and non-fungible. Non-fungible tokens are unique—one token represents one piece of an asset or one user. Whereas fungible tokens are identical and uniform. They are the closest thing to currency as we know it.
Though fungible tokens and the concept of currency is very concrete, NFT is a concept that is still hard to grasp for some. In this article, you will learn the broad idea and contrasting aspects of the different tokens you can encounter on Web3.
What is a Token?
First of all, let’s address tokens. A token is a digital good that can be traded. It is an object with an associated value or quality.
Tokens are used to represent nearly everything of value. We use them in games to represent health (hit points) and money (gold pieces). We use them in our daily lives to represent loyalty points from credit card companies and airline miles. They represent stocks, loyalty rewards from retailers, intangible assets such as votes and shares, and much more.
On the blockchain, there are several types of tokens, we will explore Fungible and Non-fungible tokens.
Fungible tokens
Blockchains are "decentralized" because there is no central authority that controls them. Everyone has access to an identical copy of the blockchain's history. The list of transactions on the Ethereum blockchain is public information that anyone can view at any time.
Tokens are not exactly like currency, but they can be used to represent assets on the blockchain. They can also be exchanged for other tokens or for "fiat" currency—that is, real-world money such as USD or EUR.
Fungible tokens are owned by users and they make up the basic building blocks of this new decentralized financial system. When someone sends you ETH, they're sending a quantity of fungible tokens to your address which represent units of value.
Fungible tokens can be exchanged for other tokens or for fiat currency. You can send ETH to your friend over the Ethereum network and have them receive it right away instead of waiting 10 minutes for a confirmation (although confirmations do add security).
Fungibles can be split into smaller units, which means you can transfer just a fraction of your token to someone else, like sending 0.5 ether instead of 1 ether.
With Starton, you can deploy smart contracts for fungible tokens using ERC20-flavored smart contract templates. Read More.
Non Fungible tokens
Non-fungible tokens (NFTs) are digital items you can own. Unlike fungible tokens, which are interchangeable, each non-fungible token is unique and cannot be exchanged for other NFTs or divided. Non-fungible tokens can represent a physical asset such as a rare painting or a virtual collectible like an in-game skin for a character.
When minting an NFT, when the artist chooses between generating a unique copy or multiple identical editions of the content, they are called additions. This is one type of collection. Multiple digital items will be issued. They will feature identical content with a different, unique token ID for each NFT. Each Token has a unique ID that can be used to identify that particular token from all others.
So if the entire point behind NFTs is that they are unique and rare so why are single NFTs called one of one?
In the digital art space, we often hear the term "non-fungible token," or NFT. When we use this term, most people probably think of a unique blockchain collectible object like CryptoKitties, CryptoPunks, or even ERC721 tokens. Each of these items is unique, and there is no way to create two identical items that both have value. The idea of non-fungible tokens is actually much broader than what we often see in crypto collectibles. In fact, it's possible to have non-fungible tokens even if there are multiple instances of the content that they contain—as long as they're all different in some very significant way.
NFTs consists of content on one hand and a serial number on the other. NFTs cannot have the same edition number, but their content can be identical.
When the creator of an NFT, the artist can choose whether to make a single edition (version) of it or multiple identical editions called additions. This is called a collection.
It enables more people to collect the artworks and support the artist at the risk of devaluating the NFT’s scarcity.
One of one NFTs
So as we’ve just seen, 1 of 1 NFT, is a Non Fungible Token of which a single edition exists. It is edition one out of a collection of one. The content of the NFT will be unique. You can mint several 1 of 1 NFTs with a common theme. This is one kind of NFT collection.
One-of-one NFTs are rare figures that are limited to only one edition. One-of-one NFTs are generally unique and cannot be duplicated, as they have been created through a minting process that will never be repeated. This is different from most tokens, which are not unique and can be minted in mass quantities.
If you’re interested in creating a token that is unique and can never be duplicated, then you can use ERC721 flavored smart contract templates. These templates can help guide you through the process of creating your own 1 of 1 NFT. Read More.
One of many NFTs
So far, we've focused our attention on Non Fungible Tokens (NFTs) that only have one edition. This is where the "1 of 1" part comes in. But not all NFTs are one of one. Take, for instance, a real-life painting: each and every painting has different brush strokes and colors—which makes each one unique. Similarly, each digital card game that you collect can be thought of as an NFT—you're collecting an array of unique cards that you can use to play with other players.
If you want to mint more than one edition of your NFT, you'll need to create a smart contract using an ERC1155-flavored template. For now, here's how it works: let's say you want to create a digital collectible token for your favorite artist's album. You're offering limited-edition digital prints of the album art as well as a limited number of CDs containing the music. You could create 1 edition for the digital prints and 1 edition for the CDs, or you could create 2 editions for both pieces of content and 2 separate smart contracts: 1 for each edition.
When minting an NFT, the artist makes multiple identical editions of the content they are called additions. This is one type of collection. Multiple digital items will be issued. They will feature identical content with a different, unique token ID for each NFT. In this case, you will have a unique token ID for each digital item issued with its unique data.
With Starton, you can deploy smart contracts for 1 of many NFTs using our ERC1155 flavored smart contract templates. Read More.
