From a regulatory perspective, cryptocurrency tokens can be broadly classified into three categories: currency, utility, and security. This distinction was majorly coined to help governments easily create laws to regulate crypto assets. Hence, depending on what use cases a cryptocurrency token has and what properties it possesses, governments regulate them using similar laws they use for currency, utility or security.
But if we were to go back to blockchain basics, every cryptocurrency token can be categorised either as fungible or non-fungible.
What are fungible tokens?
Fungible cryptocurrency tokens are tokens that imitate each other in value and property and are interchangeable in a 1:1 ratio. Whether we compare them as a whole or as smaller fractions of the whole, one token will always be the same in value and bear the same properties as the next one and every other token of its type.
A real-world example of a fungible token is a traditional currency. A $1, $20, or $100 note will always be equivalent to all other $1, $20, and $100 notes at any given time. Even if we replace these notes with notes or coins of smaller denominations, they will still replicate each other’s value.
In the blockchain world, a majority of cryptocurrencies including the likes of Bitcoin, Ether, Litecoin etc. qualify as fungible tokens. This is why these tokens can be traded or interchanged easily with each other as no two tokens or equal fractions of them will ever possess different values.
These tokens are mostly used as a store of value, medium of exchange, or as tradable assets.
What are non-fungible tokens, or NFTs?
Contrary to fungible tokens, every non-fungible token is completely unique and possesses a different value. Due to their unique values, they are not interchangeable and cannot be divided into smaller parts and traded for some other tokens.
The most common real-world example would be paintings by famous artists like Pablo Picasso. People spend millions of dollars on these paintings and each one of them have their unique value. They can neither be divided into smaller parts nor traded for other paintings of the exact same value.
The most widely used non-fungible crypto tokens at present are unique or rare collectibles. Just like paintings or any other NFT imaginable, blockchain-based NFTs can be extremely interesting and expensive.
Crypto Kitties is one of the most famous NFTs ever created on the blockchain and they drove the hype around crypto collectibles. These are cryptographically unique digital cats that can breed over time and create new tokens, or rather, cats. The most expensive Crypto Kittie ever sold was worth $170,000. Also, the fact that these tokens are stored on the blockchain, they are completely secure against counterfeiting.
Beyond crypto-collectables and game tokens, however, blockchain-based NFTs have a wide range of more serious applications. For example, anyone’s digital identity, real estate data, academic certificates etc. can be tokenised and registered on the blockchain. The ability to tokenise data and identity to securely store them on the blockchain is under the lens of many small and large enterprises and it is seeing wide innovation and adoption across several industries.
To be precise, there is no competition between fungible and non-fungible cryptocurrency tokens. It’s true that fungible tokens rule the vast majority of the market, but they have completely different use cases as compared to NFTs. The world of cryptocurrencies will always be a sweet mix of these two types of cryptocurrency tokens.
Alacrity is a growing blockchain ecosystem that enables anyone to create both fungible and non-fungible tokens without any prior development knowledge. The process is simple and takes only a few minutes to complete. If you are planning your own blockchain token, keep it easy and create it on Alacrity.