Non-fungible tokens, or NFTs, are tokens representing the ownership of an item with unique traits. They are commonly applied in artworks, collectibles, game assets, domain names, and real estate.
A NFT cannot be replaced by other tokens since it’s unique. This is what makes it non-fungible or irreplaceable. This property is achieved by setting up a smart contract that prevents duplication and its scarcity is guaranteed by the blockchain.
In contrast, fungible tokens, or FTs, can be replaced by other tokens since they depend on their value, not uniqueness. Given that, Alice can exchange her $1 and 1 Bitcoin for $1 and 1 Bitcoin from Bob.
In addition to being non-fungible, NFTs are different from fungible tokens in the following aspects:
- Non-fungible tokens are unique while fungible tokens of the same kind have the same characteristics, meaning that they are of no difference.
- Non-fungible tokens are indivisible. However, fungible tokens can be divided into smaller parts.
- Non-fungible tokens are based on standards such as ERC721, ERC1155, and ERC998. In comparison, fungible tokens are based on standards like ERC20.