It’s important to understand the various high level aspects of blockchain to really appreciate a cryptocurrency. One of those aspects is the creation of a “non-fungible” token. As blockchain developed it was obvious that the technology did not just have to be confined to currency.
Blockchain has the possibility to be used in certificates, real estate, file sharing, as well as many other real world applications. For this to happen the original token standard had to evolve. The base standard (which Bitcoin was built on) allowed for the creation of completely identical, interchangeable but also divisible tokens. Obviously that would not work on something like a certificate which states you own your house. How many people do you know with the same birth certificate?
This new invention is known as non-fungible tokens. They work in the same way within the confines of blockchain but they allow for complete uniqueness, one of the most well known examples of the use of non-fungible tokens is within Ethereum. A user has the option to create both fungible and non-fungible tokens on Ethereum using both standards, I recommend you read through our “What is Ethereum” post too. Let’s discuss the differences and why we might use each.
Fungible
Fungible tokens are the base case for cryptocurrencies. Most well known cryptocurrencies use the ERC-20 standard which allows for the creation of identical, uniform, and divisible tokens. The best real world example is standard fiat currency. If i give you $10 you can give me back two $5 dollars and it can be broken up many times into various notes and coins, but that makes no difference to the holder. This fungibility is a necessary part of a currency as its important that no $1 is worth more than someone else $1.
Non-Fungible
Non-fungible tokens started with the Ethereum protocol EIP-721 in 2017 which in 2018 was accepted as ERC-721. If you’ve heard of CryptoKitties, you’re already aware of a great use-case. These were collectables, each one unique and tradable. Each cat’s digital genetic material was stored on the blockchain with some being rarer than the rest. Other games have followed on with some utilising tokens to store unique items such as weapons and gear.
Non-fungible tokens allow you to attribute rich meta data about an item and include information about ownership. Much like a football that was used at the World Cup, these digital details can be authenticated and add to its value.
This innovation from the original blockchain standard has paved the way for an all new breed of distributed applications, games, real world certificates, and user based information.
