Fungible Vs Non-fungible Tokens

The concepts of fungible vs. non-fungible tokens are relatively old in economics. Coin-like objects were traded as far back as the Roman Empire, apparently as tokens for brothels or gaming. In Medieval times, tokens called “Abbot’s money” were used by English monasteries to pay for services provided by foreigners.

Between the 17th and 19th centuries, merchants trading in the British Isles and North America regularly used fungible tokens — they represented a pledge redeemable for goods when state coins were scarce.

Fast-forwarding to more recent times, arcade games and casino slot machines started using fungible tokens interchangeable with money. Other tokens are used in services like car washes, parking garages, or public telephone booths.

In the crypto era, the concept of tokens remains the same: the representation of something tangible (physical) or intangible (non-physical, i.e., a service) within its ecosystem.

In a blockchain, fungible tokens are cryptocurrencies like Bitcoin (BTC). Non-fungible tokens are data units that represent a unique digital asset stored and verified on the blockchain.

Familiarity with fungibility in economics might help one better understand fungible and non-fungible tokens. The only difference is that crypto tokens express their fungibility property through a code script.

Fungible tokens or assets are divisible and non-unique. For instance, fiat currencies like the dollar are fungible: A $1 bill in New York City has the same value as a $1 bill in Miami. A fungible token can also be a cryptocurrency like Bitcoin: 1 BTC is worth 1 BTC, no matter where it is issued.

Non-fungible assets, on the other hand, are unique and non-divisible. They should be considered a type of deed or title of ownership of a unique, non-replicable item. For example, a flight ticket is non-fungible because there cannot be another of the same kind due to its specific data. A house, a boat, or a car are non-fungible physical assets because they are one-of-a-kind.

The same applies to non-fungible tokens, representing one unique and indivisible item — physical or intangible — like a picture or intellectual property. Blockchain is the underlying technology that can easily prove ownership of an intangible digital item.

The main difference between fungible and non-fungible assets resides in the content they store. While fungible tokens like Bitcoin store value, non-fungible tokens store data like an academic title or an artwork.