Tokens are all around us. You may not have realized this because we do not call them that. We have been taking them for granted because of how common they are. People are renewing their interests in understanding token economics because of blockchain technology. Tokens play an important role in human to human socio-economic exchange.
Blockchain technology is remaking the world as we know it. The world is familiar with decentralized finance, non-fungible tokens (NFTs) and smart contracts. All these innovations result from blockchain technology. Every new technology disrupts traditional industries and markets. This time, the difference lies in the scale of what is possible.
Adoption rates of cryptocurrencies and NFTs are growing day by day. In such times, we must learn about new concepts and ideas. Today’s post is about fungible and non-fungible tokens.
But, first, what are tokens?
Tokens are a form of Value
As human beings, we can ‘believe’ that ‘something’ has value. Hence, convince others to do the same. For centuries, we have been exchanging one form of value for another. The barter system was the most common method of exchange that we had. However, it made things complicated after a point. This was because there are too many objects to buy, sell and trade. In came the magic of tokens and money.
It could be salt, livestock, rice, wheat or anything that is useful. Hence, anything that we think is useful is a form of value. Tokens are the same.
Today, tokens can mean many different things to different types of people. Tokens are different from ‘currency’. Anyone can issue tokens. A government tvoted into political power by a nation’s citizens issues currency. Many entities issue different types of tokens. Amusement parks, games, movie theatres, online sites; all use physical or virtual tokens. This incentivizes people to use more of their products or services in exchange for real currency.
However, issuing tokens without blockchain technology has its limits since it would be easy to counterfeit. Thus tokens without blockchain technology are not scalable to billions of people and transactions.
Some Example of Tokens
Tokens are how how human beings store, use and exchange economic value or proof. Some example are:
- Official documents like your driver’s license, birth certificate, educational degree etc.
- Stocks, bonds, commodities (when not physically delivered) and financial assets
- Day to day currencies used for purchasing goods and services. Depends on which country you stay.
- Vouchers, gift cards, redeemable points etc. created by companies to help you later in the future
Looked at in this way, tokens are all around us. From the warranty card you’ve received for your smartphone or laptop to your coffee subscription card, everything is a form of token. Even your car is a token because it provides you a transportation service as and when you need it. Similarly, so is the fuel that powers it.
The main reason for us to use tokens is because of their social uses. You may remember how you used the slot machine or video games. As a child games and books are favourite things to do. Why did we not realize this about tokens? Because they are all around us.
This will seem counterintuitive to you. That’s because of how familiar we’ve become to using them through our apps and smartphones.
Now let us understand fungible and non-fungible tokens.
What are Fungible Tokens?
Tokens that are the same as one another are fungible. For example, let’s come back to our currencies. Each dollar or pound or rupee or any other currency is exactly the same in value as the other. A unit of currency does not change its value. There is a reason why we need them. Most of our thoughts are about money. Money is one of the main reasons why we get up in the morning. All of us know that.
One bitcoin’s value is the same as another bitcoin’s value irrespective of the circumstances of its usage. This property of money and tokens help us to understand money as a form of social technology. All cryptocurrencies are fungible tokens.
Although their market value fluctuates every second depending on how people are buying and selling them as investment or securities, each one of them is worth the same as the other. Thought like that, all generated electricity is a form of fungible token because your electricity is the same as others’, although costs vary depending on source and place.
Hence, fungible tokens are interchangeable and divisible.
What are Non-Fungible Tokens?
In simple words, non-fungible tokens are unique, not interchangeable and non-divisible. They are the same as real world objects like cars. The main difference is that they live on the blockchain.
The blockchain stores the address of each non-fungible token. Its value lies in the eye of the beholder. For example, your smartphone is a form of non-fungible token. However, the blockchain does not store its certificate of ownership yet. Still you can prove your ownership because you’ve a receipt from the store where you purchased it.
Although, you can bet that many consumer electronics devices in the future will store ownership certificates and related tokens on the blockchain.
Only the owner can replicate a non-fungible token. Almost all real world utilities are a form of non-fungible tokens. Devices, machines, artworks, intellectual property etc. are all non-fungible tokens. Most if it is not on the blockchain yet. In fact, this is what the ‘tokenization’ of everything looks like.
The vision is to put everything real on the blockchain and trade them 24/7. As and when owners need to buy and sell different items. There are ways to realize this vision.
Non-fungible tokens will revolutionize trading and commerce as we know it.
While tokens are already known to us, it’s the blockchain that gives tokens their unique properties. For the first time in history, we are on the verge of enabling anyone to buy and sell anything they want all across the world. Imagine liquid, 24/7 markets for everything and anything. Anything and everything that have socio-economic value. So what are you planning to do about it? Start tokenzing or helping others tokenize.
NFTically is a B2B saas venture that helps brands, creators and enterprises create and launch their NFT marketplaces.
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