Source | Securities
There has been a lot of hype surrounding non-fungible tokens (NFTs) as of late. These unique digital assets build on the security of traditional cryptocurrencies and introduce some new functionalities and opportunities to the market. Non-fungible tokens differ from regular cryptocurrencies in some key ways. The main difference is that these tokens represent something unique. As such, NFTs are not mutually interchangeable with other tokens or digital assets.
Fungibility vs. Non-Fungibility
To understand NFTs, you first need to grasp the differences between fungible vs. non-fungible assets. Notably, fungibility is a core characteristic of all successful monetary systems. Put simply, fungible assets share the same value. For example, an ounce of gold possesses the same value as any other ounce of gold that holds the same purity. The same goes for fiat currencies. You can spend a dollar and receive another dollar with no loss of value.
Notably, most cryptocurrencies are semi-fungible by nature. This distinction results from the fact that blockchain assets are easily trackable. So, while in theory, any two Bitcoins hold the same value regardless of their past use or how they were procured, this isn’t always the case. Recently, crypto’s fungibility has been put at risk with the introduction of more powerful blockchain forensic tools. These tools have led to organizations being able to refuse or blacklist certain coins.