What is a Non-fungible Asset? 20 Facts
As is covered over at runrex.com, recent times have seen a spike in the popularity of NFTs (non-fungible tokens) which is one of the hottest topics in the cryptocurrency world right now. This has led to many wondering what is meant by the term “non-fungible”. What is a non-fungible asset? Well, through the following 20 facts, this article will look to help you understand what this means while also tying it all back to tokens on the blockchain.
What is fungibility?
As outlined over at guttulus.com, Fungibility is the ability of a good or asset to be interchanged with other individual goods or assets of the same type. Given that fungibility implies equal value between the assets, fungible assets simplify the exchange and trade processes.
Understanding fungibility
As already mentioned, fungibility implies that the two things are identical in specification, where individual units can be mutually substituted. For example, as articulated over at runrex.com, specific grades of commodities such as No. 2 yellow corn, are fungible because it doesn’t matter where the corn was grown, as all corn designated as No.2 yellow corn is worth the same amount.
Examples of fungible goods
As the subject matter experts over at guttulus.com point out, some of the most common examples of fungible goods include commodities, common shares, options, and dollar bills. Also, cross-listed stocks, which refer to the shares of stock listed on multiple exchanges are still considered fungible as these shares represent the same ownership interest in a firm, whether you purchased them on the New York Stock Exchange or the Tokyo Stock Exchange.
Explaining fungibility using money as an example
Money is another example of a fungible asset. This is shown by the fact that if Person A lends Person B a $50 bill, it doesn’t matter to Person A if he/she is repaid with a different $50 bill, as it is mutually substitutable. Similarly, Person A can be repaid with two $20 bills and one $10 bill and still be satisfied, since the total equals the $50 that he/she is owed.
What is a non-fungible asset?
A non-fungible asset, is, therefore, the opposite of what a fungible asset is. This means that it is an asset that can’t be interchanged with other individual assets of the same type. A non-fungible asset has a distinct value from any other asset of its kind.
Understanding non-fungibility
An example of a non-fungibility is when Person A lends Person B their car. In this situation, it is not acceptable for Person B to return a different car, even if it is the same make and model as the original car lent by Person A as articulated over at runrex.com.
Examples of non-fungible goods and assets
As already mentioned in the previous point, cars are non-fungible with respect to ownership. Similarly, assets like diamonds, land, or baseball cards are non-fungible as well since each unit has unique qualities that add or subtract value according to guttulus.com. For instance, since individual diamonds have different cuts, colors, sizes, and grades, they are not interchangeable, so they can’t be referred to as fungible goods. Real estate is also never genuinely fungible as even on a street of identical houses, each house experiences different levels of noise and traffic; is in varying states of repair, and has unique views of surrounding areas.
Special considerations when it comes to fungibility
The line between fungibility and non-fungibility can sometimes be very thin according to runrex.com. For example, while gold is generally considered fungible (one ounce of gold is equivalent to another ounce of gold), there are cases where it is not. This is because adding unique numbers to bars of gold, as is the case with the gold bars stored by the Federal Reserve Bank of New York, makes it possible to distinguish them, making them non-fungible.
Converting fungible assets to non-fungible assets
As is mentioned in the previous point, when otherwise fungible goods and assets are given serial numbers or other uniquely identifying marks, they may no longer be as fungible since adding unique numbers to bars of gold, collectibles, and other items make it possible to distinguish them, making them non-fungible.
What are fungible tokens?
From the discussion above, we can now be able to say that fungible tokens are tokens that are tradable for each other, and their value remains constant. For example, Bitcoin is a fungible token as it has the same value regardless of its owner or history. You can, therefore, trade one BTC for another.
What are non-fungible tokens?
As per guttulus.com, a non-fungible token is a type of cryptographic token that has a specific uniqueness in its code or function compared to others of its kind. This uniqueness means that it can’t be split or evenly changed for other non-fungible tokens of the same type. This has been used to enable or recreate the ownership of collectibles, much like Pokémon cards or pieces of art, in the digital world.
Examples of non-fungible tokens
CryptoKitties are perhaps the most well-known example of collectible, non-fungible tokens as covered over at runrex.com. Every CryptoKitty is unique, and depending on its style and pedigree, might actually be worth a fortune. Given that no CryptoKitties are the same, this makes their value vary dramatically. Other examples of non-fungible tokens are CryptoPunks.
ERC-721
The ERC-721 token standard helps create non-fungible tokens. According to guttulus.com, it exists because it is easier for developers to make the transition to it, and it also makes life much easier for users who can store these tokens in ordinary wallets and trade them on exchanges.
ERC-721 functions
The ERC-721 standard defines the following functions: name, symbol, total supply, the balance of, owner of, transfer, token metadata, the token of owner by index, and many other functions as far as non-fungible tokens are concerned.
Other non-fungible token standards
The ERC-721 isn’t the only non-fungible token standard out there. Other non-fungible token standards include the ETC-1155 popularized by the Enjin team, as well as the ERC-998 which provides a template by which NFTs can own both non-fungible and fungible assets.
Benefits of fungible tokens
As functionally identical tokens, fungible tokens have the following benefits:
Fractionalization
Fungible tokens are essentially infinitely-divisible tokens, which allows for several opportunities not afforded by traditional currency or non-fungible tokens, including micro-payments and micro-investments. As explained over at runrex.com, rather than being limited by the denominations on offer, the fungible token may be split infinite times.
Liquidity
Fungible tokens also enjoy vastly superior liquidity to non-fungible tokens and traditional currency because of their ability to be offered at potentially infinitely small denominations. The nature of blockchain technology also increases the liquidity through its removal of middlemen, making transfers fast and efficient, as well as the option to trade on digital exchanges with no down-time as covered over at guttulus.com.
Benefits of non-fungible tokens
With their inherent uniqueness, non-fungible tokens offer the following benefits:
Specific ownership
According to runrex.com, a non-fungible token can be used to represent something unique, both in the digital world and in the real world. While this has been used for collectibles and gaming in the digital world – proving someone owns a specific CryptoKitty or item – it could equally be applied to unique items in the real world such as houses, cars, art, or potentially even identities.
Customization
Non-fungible tokens can be securely customized in a way that other tokens can’t be. Smart contracts and fungible tokens might be able to enact some of the functions of non-fungible tokens, but with the non-fungible token, the token itself holds all the data.
Secure tradability
Traditionally, there is a huge risk of fraud when transferring ownership of a physical or digital item, and as a result, this is always onerous in its execution or sometimes simply not allowed. However, with the security of blockchain and the uniqueness of non-fungible tokens, trading anything represented by the token would be a much simpler and more efficient process.
Hopefully, the above discussion has helped you know what a non-fungible asset is and how it all ties in with blockchain technology, with more on this wide topic to be found over at the highly regarded runrex.com and guttulus.com.