The blockchain industry is developing at a massive speed. Crypto enthusiasts see hear of new ventures, terminologies, and assets every other day. On this blog, we share everything that helps crypto users in understanding the world of cryptocurrencies. So, in today’s post, we will discuss the types of digital coins.
The holders of digital assets want to accumulate the value of their assets in two ways. They either want to buy stuff with them or trade them to make a profit. The digital coins’ value is impacted by their type. There are two types of crypto coins according to the fungibility factor:
What is Fungibility?
Fungibility is a concept borrowed from economics. It defines the ability of an asset (crypto coin in this case) to be interchanged into an asset of the same value. Fungibility implies that two goods are similar in their characteristics. For instance, fiat currency is a fungible asset. You have one dollar in your pocket. If you lend it to someone and later they give it back to you, then the bill might not be the same but it will hold the same value. So, the currency notes are substitutable. On the other hand, there are assets that cannot hold the same value if interchanged. Cars are a case in point. If you lend someone your car and they return a different one than the value is altered. Hence cars are a non-fungible asset.
Likewise in the crypto industry, some digital coins are easily interchangeable while others are not.
Fungible Digital Coins:
A good number of digital coins are fungible. Essentially, this means that each token is of the same value as the next one. For example, Bitcoin in your wallet is fungible. You can swap it with someone else’s coin and will still have the same value.
Non-Fungible Digital Coins:
There is a special type of digital coins that have unique specifications. Resultantly, two non-fungible tokens (NFT) don’t hold the same value. Most NFTs are utilized for crypto collectibles.
In 2017, with the launch of the crypto game ‘Cryptokitties‘, the NFTs came on the scene. Cryptokitties allowed players to breed and virtual cats. The transactions happened on the Ethereum network. Crypto kitties are the best example of NFT. No two kitties are similar so they can’t hold the exact same value. Additionally, a holder cannot divide kitty and make another asset out of it.
The transactions of crypto kitties increased dramatically by the end of the year. Ever since NFTs are gaining popularity among the crypto community. Now you can also by/sell virtual land as well.
Both fungible and non-fungible tokens have their own use in the crypto industry. However, NFTs are relatively new and show potential for disrupting the way we imagine money. Physical objects can be tokenized with NFTs. In certain cases, NFT assets are more liquid than fungible assets. Thus you can acquire both fungible and non-fungible digital coins for improving your portfolio in the world of cryptocurrency.