What is the Difference Between Fungible and Non-Fungible
NFTs, or non-fungible tokens, are an emerging digital asset class that has captured the attention of consumers and investors alike. Fungibility is defined as being capable of being substituted and divided. Non-Fungible is defined as something unique but unable to be divided or exchanged for any other item. For context, we are discussing fungible vs. non-fungible tokens. Tokens are tangible representation of detail, feature, and value within their designated ecosystem. The ecosystem enables the token to have a specific role within a blockchain (or any system). Fungible tokens, such as Bitcoin, or fiat currency are exchangeable but also divisible (IE 4 quarters for a dollar). Non-fungible tokens, aka NFTs, are unique with no two tokens being the same.
Fungibility is a fundamental feature of cryptocurrencies. Bitcoin is fungible; therefore, one Bitcoin is equal to one Bitcoin, but one Bitcoin can be divisible in millionths. Yes, Bitcoin can be broken down into .000001. And to think we were just about to laugh in Bitcoin’s face because there are no 1s,5s, 10s, 20s, 50s and 100s.
Non-fungible tokens are not interchangeable. You can’t exchange one NFT for another and have the same thing. This is true even for NFTs of the same project. For example, you can’t exchange one Hashmask for another Hashmask and have the same item. This is true even if some how the Hashmask was worth the exact same amount in Bitcoin or Ethereum. Simply because a Non-fungible item is equal in value to another Non-fungible item does not mean they are the same. Some buzz words and themes surrounding Non-Fungible tokens are supply chain tracking, copyright, medical data, KYC procedures, voting, loyalty programs, art, in game items, collectible, etc.
Property law has long relied on fungibility and tangibility to delineate whether a “thing” is a “thing” and to inform the bounds of in rem rights and duties. Unfortunately, property doctrines have fossilized over tangible boundaries, hindering property law from adequately addressing the ever changing landscape of emerging technologies, whether cryptocurrencies, NFTs, or other digital assets. The status quo has led to a fragmented system of legal treatments that increases the information cost of using digital assets, decreases efficiency, and ultimately hinders future innovation.