Welcome to Hard Fork Basics, a collection of tips, tricks, guides, and advice to keep you up to date in the cryptocurrency and blockchain world.
In the world of cryptocurrency, tokens are king. It’s certainly true that they can be effectively grouped into three distinct categories, but this is (mostly) for government watchdogs to decide the best regulatory measures taken to control their issuance and exchange.
If we zoom out to see how tokens are built, rather than just how they should be regulated, it becomes obvious there are actually two flavors of cryptographic token: fungible, and non-fungible.
Confused? Yeah, okay. Fair enough. Don’t worry, the differences really simple, and better yet – quick to explain.
Bitcoin is fungible
Fungible cryptocurrencies represent the overwhelming majority of tokens on the market. Fungible tokens are digital assets built so that each individual token (or fraction of a token) is equivalent to the next.
For example, fiat money is fungible as $20 notes are interchangeable with all other (real) $20 notes. Similarly, one Bitcoin is equal to one Bitcoin, and it’s equal to all other Bitcoins.
This makes fungibility completely essential to the concept of currency, whether they be crypto or otherwise.
Another defining factor of fungibility is the ability to change that $20 note into smaller denominations and still retain the same overall value. I mean, I can swap my $20 note for two $10s and not have lost any money along the way. Neat.
Using Bitcoin as an example, I can swap half a Bitcoin for anyone else’s half a Bitcoin, feeling confident that our Bitcoin halves hold the same value, despite being halves of different coins.
CryptoKitties are non-fungible tokens
Non-fungible tokens are designed to be special. It’s best to think of these kinds of tokens as representing unique, collectible items.
Consider precious gems. Diamonds, for example, come in all different sizes, grades, and cuts.
This makes it difficult to determine if any two diamonds hold the same value. More than likely, a single diamond is treated as a unique gem, unable to be valued equally to all the others.
CryptoKitties are the similarly non-fungible. They’re perhaps the most well-known example of collectible, non-fungible tokens.
Every CryptoKitty is unique, and depending on its style and pedigree, might actually be worth lots of money.
As no two CryptoKitties are the same, this makes their value vary dramatically. This makes it impossible to divide a CryptoKitty into smaller parts, trade them for others, and reassemble them to create a new, equally valuable CryptoKitty, as is possible with fungible assets like Bitcoin, or gold.
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Published November 23, 2018 — 11:58 UTC