Fungible And Non-fungible Tokens in a Blockchain

Tokens in a blockchain are typically referred to as crypto tokens and represent digital units of value developed on existing blockchain networks. Businesses build their token on a blockchain to serve purposes that include transferring value, giving access to a subscription, and even voting.

The first fungible tokens were developed on the Ethereum blockchain and are identified as ERC-20. They set the standards that allow developers to build applications of different natures.

The initial coin offerings era, which boosted an industry worth nearly $15B between 2016 and 2018, built its fortunes on ERC-20 tokens.

Non-fungible tokens have been around since 2012, when the concept of colored coins first emerged within the Bitcoin blockchain. Instead of building other blockchains as sidechains, colored coins allow the attaching of metadata — further information about the specific data used — to Bitcoin transactions.

Colored coins may represent real-world assets traded on the Bitcoin blockchain; however, they are tied to a contract outside the blockchain and must be based on trust. A group must agree that a certain amount of these coins represent another value altogether. In that case, they can potentially use these “designated” coins to transact in that value.

The digital tokens used are satoshis, tiny fractions of a Bitcoin, marked or “colored in” with the information linking the coins to real-world assets.

Colored coins did not find much application in the cryptocurrency industry. They were mainly used to create and trade artworks like “Rare Pepe” digital cards on Counterparty, a peer-to-peer trading platform built on Bitcoin’s blockchain.

The first non-fungible tokens were also developed on the Ethereum blockchain and used to uniquely identify a product, service, or person.

Some NFTs are built on the Tron and EOS blockchains, which host voting tokens. The possible applications are infinite for this type of token, from collectible items like artworks and musical creations to lottery tickets to concert and sporting event seats.

NFTs can even be marketplaces for storing academic titles and digital identities on the blockchain since they’re easily traceable and verifiable.

There’s a misconception surrounding NFTs: their perception solely as artworks after their incredible market growth in 2020 and 2021. However, NFTs had a significant application within the gaming industry long before the arts became involved.