What Is A Non Fungible Token, And How Does It Work?

What Is A Non Fungible Token, And How Does It Work?

By Yash

Fungible and non-fungible are two terms that you may have heard if you're interested in the world of virtual tokens, crypto games, and other such things. The two words can be a little confusing to understand as they don't exactly roll off the tongue. But once you know what they mean and how they differ, you'll be able to grasp their meaning much more easily. Fungible is the quality of something that can be substituted for another similar item. If something is not fungible, it means it is unique or one of a kind. Everything has some degree of fungibility, even a token on a blockchain. In this article, we will explain what non-fungible tokens are and how to invest in NFTs.

What Is A Non-Fungible Token?

A non-fungible token (NFT) is a type of digital token that can be uniquely identified and whose token supply is fixed. Unlike fungible tokens, where each token is interchangeable with another identical token, each NFT is distinct because they can't be broken down into individual components. In a blockchain, a token represents an asset or utility. In other words, a token can be anything from a digital currency to a ticket to a concert or even a share in a company's stock. On the other hand, a fungible token is interchangeable with another identical token. For example, one dollar is equivalent to any other dollar worldwide. And you'll find that most tokens in the blockchain are fungible.


How Does A Non-Fungible Token Work?


The best way to understand the concept of non-fungible tokens (NFTs) is to compare them to their fungible counterparts. Fungible tokens are tokens that are interchangeable with other tokens like them. A bitcoin, for example, can be exchanged for any other bitcoin. Non-fungible tokens, on the other hand, are unique and can't be broken down into their individual components. A football match or concert ticket is an example of a non-fungible token. A single ticket can be used to enter a stadium or concert venue with 10,000 people. For example, a painting is non-fungible because you can't break it down into its components and sell each part separately with the same value as the original painting. Unlike fungible assets, non-fungible assets are inherently unique and can't be broken down into their constituent parts and sold for the same value as the original asset. This makes them more desirable for collectors, who are willing to pay a premium to own something unique. Non-fungible tokens are an emerging asset class that offers a degree of rarity. They have the potential to disrupt traditional assets such as stocks and real estate if given the same level of liquidity.


The Importance of Non-Fungible Tokens


The main difference between fungible and non-fungible tokens is their amount of trust. There is no trust when you exchange one fungible token for another identical token. You know that you'll get exactly what you bargained for. In the case of non-fungible tokens, there is an element of trust involved. However, in this case, you know that the person who created the token is trustworthy. You can trust that they will deliver what they promised. In the non-fungible scenario, you must trust a centralized party to verify the item's authenticity and maintain its condition. In the case of fungible tokens, there is no need for trust, as you can exchange one token for another of the same value. Fungible tokens are much more common and can be found in many places. For example, traditional money, airplane tickets, and school degrees are all examples of fungible tokens. Non-fungible tokens are not as common, but they are still important. CreativeCommons and Open Source licenses are both examples of non-fungible tokens.


Non-Fungible Tokens Are Very Safe


They are very safe. In this case, you have to trust that the person who created the token is trustworthy. You have to trust that they will deliver what they promised. Unlike in the case of a fungible token, where the identity behind a token is unknown, you know exactly who created a non-fungible token. Therefore, you can give certain individuals exclusive rights to use a non-fungible token. You can also blacklist people from using non-fungible tokens if they do something you don't like. Allowing individuals to blacklist non-fungible tokens is a big advantage over traditional assets such as real estate or precious metals. Non-fungible tokens can also be used to represent non-divisible assets. For example, suppose you have a non-fungible token that represents an original Picasso painting. In that case, you can't cut up the painting and sell it in pieces. Non-fungible tokens can also be used to represent non-liquid assets. For example, suppose you have a non-fungible token representing a private vacation home. In that case, that token might only be good for renting out the home on certain dates. Non-fungible tokens can also be used to represent non-transferable assets. Suppose you have a non-fungible token that represents a private work of art. In that case, you may not want that token to be transferable.

You can track the token's history and see how it was created. You can see the steps behind its creation. Non-fungible tokens are a lot more secure than fungible tokens. This is because of their immunity to duplication. Non-fungible tokens are unique tokens that cannot be interchanged or substituted with each other. They are usually tied to something physical and cannot be copied. These tokens are also very secure as they can be frozen if they are in a situation where they are at risk of being misused or stolen. There are various non-fungible tokens that you can buy, such as licenses to view certain websites or view certain content. There are also some non-fungible tokens that you can earn. For example, suppose you have a certain skill. In that case, you can receive a non-fungible token as a reward, such as a token that allows you to access a certain website or earn tokens for your skill. Non-fungible tokens can be very valuable, especially if they are tied to something scarce, like a certain physical asset.


Why Are NFTs Becoming Popular?


These instruments have been around for a long time. But they are now seeing a major boost in their usage because of many factors. One of the main reasons is the excitement and normalization related to cryptocurrencies and the blockchain frameworks. Beyond the tech are the laws of scarcity, the economics of royalties, and a mixture of fandom. The users all want to get in on the chance to get unique digital content and probably hold them as a kind of investment. When someone purchases such a nonfungible token, they get ownership of the related content. But it can make its way over on the internet. In this manner, this instrument can gain more users. It gets greater value when it is seen online. When the asset is sold off, the creator of the asset gets some percentage of the gains. The platform also gets a small percentage. The present owner of the non-fungible token gets the rest of the revenue. So, there is a great chance of ongoing revenue from digital assets as they are sold and purchased over time.

Authenticity is very important for such tokens. Digital collectibles have distinguishing data that makes them very distinct from any other tokens and are verifiable easily. This is thanks to blockchain. The development and circulation of fake collectibles do not work because all the items can be traced back to the original issuer or the creator. Unlike cryptocurrencies, they cannot be exchanged directly because no token is similar to each other.




Tokens are a crucial part of the new blockchain-based economy. They let people exchange value, shares, and assets in transparent and decentralized ways. Fungible tokens, like Bitcoin, let you trade peer-to-peer. Still, non-fungible tokens are built for use cases that involve unique or hard-to-source assets. Suppose you're creating a new blockchain-based service. In that case, you can use non-fungible tokens to represent and track assets like tickets, shares in a company, or even identity. And once you understand the difference between fungible and non-fungible tokens, you can design your system to meet your specific needs. We hope you have also found out how to invest in NFTs.