The concepts of fungible vs non-fungible tokens are rather old in economics. Coinlike 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 in times 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 such tokens get 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 (nonphysical, i.e., a service) within its ecosystem. In a blockchain, fungible tokens are cryptocurrencies like Bitcoin (BTC). Nonfungible tokens are units of data that represent a unique digital asset stored and verified on the blockchain.
Types of Tokens
There can be tokens for any kind of service or product in the crypto space. Payment tokens are, for example, coins such as Bitcoin and Litecoin (LTC) used to pay for transactions in the digital world. Utility tokens provide owners with access to blockchain-based products and services. Security tokens are traditional assets such as stocks and stocks represented by digital tokens on the blockchain. The most diverse types of tokens are substitutable and non-substitutable tokens. This is explained in this article.
Fungible vs non-Fungible
Familiarity with the concept of substitutability in economics will help you better understand substitutable and non-substitutable tokens. The only difference is that crypto tokens represent substitutable properties via code scripts. Substitutable tokens or assets are divisible and not unique. For example, fiat currencies such as the dollar are substitutable. A $ 1 bill in New York City is worth the same as a $ 1 bill in Miami. Substitutable tokens can also be cryptocurrencies such as Bitcoin. Regardless of the place of issue, 1 BTC is worth 1 BTC. On the other hand,
inviolable assets are unique and inseparable. They should be considered as a certificate or form of ownership of a unique, non-replicable item. For example, a flight ticket is not justified because there can be no other similar ticket for that particular data. Houses, boats, and cars are unique and are not substitutable assets.
How are tokens different from cryptocurrencies?
Both cryptocurrencies and crypto tokens are based on the same underlying blockchain technology. However, cryptocurrencies are payment coins that have their own blockchains. Bitcoin, Ether (ETH), and Litecoin are examples of cryptocurrencies that function on their blockchain. They can be considered fungible crypto tokens that store value or act as a medium to buy or sell goods. Crypto tokens, on the other hand, are created on another blockchain. Uniswap, Chainlink, and ERC20 are all examples of tokens developed on Ethereum.