The problem with a lot of online information is that it assumes a certain amount of knowledge – we are not going to do that. If you feel comfortable with the basics then skip right over this, but for those who feel there are still unanswered questions hang around and hopefully, we will cover them for you here.
According to the Cambridge dictionary, “fungible” means easy to exchange or trade for something else of the same type and value.
So we can assume that “non-fungible” means the opposite.
The problem is that definitions don’t always make things clear. So I thought we could look at some examples. Look at money. You may pay for something with a note and get change. We don’t care what change we get so long as it is the correct amount. Whether it is one particular coin or note is fairly irrelevant. That is because money is fungible, and each coin or note fulfils its requirement. Let’s move on to a different scenario. You buy a concert ticket, and decide that since it is a special occasion you will pay a bit extra and get a better seat. The tickets for this concert are non-fungible because the tickets have seat numbers and some are better than others. They do not all fulfil the same criteria so they are not swappable.
So how does this concept apply to NFTs?
An NFT is a unique digital identifier that’s
secured and stored on a public blockchain. One token is not interchangeable for another, and a token cannot be further divided.
The NFT has recently shot to fame, but they have been around for a while. Following the success of Bitcoin and then many other cryptocurrencies, a surge of projects followed, each spawning its own unique fungible tokens. Suddenly developers started to envision lots of different types of digital collectables. These projects required a different type of token standard to ensure the uniqueness and non-divisibility of each project.
One of the early and big sensations was the CryptoKitties. These took off for several reasons, one being their cuteness and the other being the similarity to Tamagotchi. The CcryptoKitties have now died down, but new users are still joining in 2022. The biggest and most exciting part of the kitties was the possibilities that it illustrated. The imagination of the crypto community was ignited and there was no going back.
We now know what the words mean and how they started but there is one thing we still need to review. How do they work?
If you buy an NFT, you may wonder what stops people from hitting the print screen and having your NFT? Well, they can do that. This will give them a copy of the image associated with your NFT. When you buy an NFT you are buying the blockchain associated with the image, and duplicating that is nearly impossible. This is stored on a public blockchain. You may think that the fact that it is public is a problem, but it also means that it is decentralised. This means that you don’t need to trust anyone. Perhaps you didn’t think you usually trusted someone when you invested? Think about your bank. You gave them your money and now you have to trust them to give it back to you when you want it. This is what is missing in the crypto world. Being public means that there is no organisation (think Lehman Brothers) who have ownership or control of your investment. This is a big difference!