1. Tokens
Tokens are digital assets that represent ownership or utility within a blockchain network. They can have various forms and purposes, such as representing cryptocurrencies, rights, or services within a platform.
- Fungibility: Most tokens are fungible, meaning each unit is identical and interchangeable with another. For example, one Bitcoin is always equal to another in value.
- Built on Blockchain: Tokens are created on existing blockchains, like Ethereum, Binance Smart Chain, or Solana, using smart contracts.
-
Utility: Tokens can have different use cases,
such as:
- Payment Tokens (e.g., Ethereum’s ETH)
- Governance Tokens (giving voting power in decentralized platforms)
- Utility Tokens (accessing services or features within a specific platform)
Token Standards: Tokens follow specific rules or standards on different blockchains:
- ERC-20 (Ethereum) for fungible tokens
- BEP-20 (Binance Smart Chain) for similar fungible tokens
Example: USDT (Tether) - a stablecoin pegged to the value of the US dollar, meaning 1 USDT always equals another USDT.
2. Non-Fungible Tokens (NFTs)
Non-Fungible Tokens (NFTs) are unique, non-interchangeable assets on the blockchain, unlike fungible tokens where each unit holds the same value.
- Uniqueness: Each NFT is one-of-a-kind and cannot be exchanged on a 1:1 basis with another NFT, making them ideal for representing ownership of digital art, collectibles, or real-world assets.
- Ownership: NFTs provide proof of ownership over digital assets, like art, music, and virtual real estate, all recorded on the blockchain.
- Indivisibility: NFTs are typically indivisible, meaning they can’t be split into smaller parts.
How NFTs Work: NFTs are created using smart contracts on blockchain networks like Ethereum or Solana. They follow specific standards:
- ERC-721 (Ethereum) for non-fungible tokens
- BEP-721 (Binance Smart Chain) for NFTs
Use Cases:
- Digital Art: Artists sell their work as NFTs, with ownership recorded on the blockchain.
- Collectibles: NFTs represent virtual trading cards, in-game items, or rare collectibles.
- Virtual Real Estate: NFTs allow buying and selling land in virtual worlds like Decentraland or The Sandbox.
Example: CryptoPunks - one of the earliest NFT projects on Ethereum, where each digital character is unique and highly collectible.
| Feature | Tokens | Non-Fungible Tokens (NFTs) |
|---|---|---|
| Fungibility | Fungible (identical and interchangeable) | Non-Fungible (unique, not interchangeable) |
| Use Case | Currency, governance, access to services | Digital art, collectibles, real estate |
| Divisibility | Can be divided into smaller units | Indivisible (usually) |
| Standards | ERC-20, BEP-20 | ERC-721, BEP-721 |
| Example | Bitcoin, USDT, ETH | CryptoPunks, Bored Ape Yacht Club |
Summary
Tokens are fungible digital assets that are interchangeable and divisible. They are primarily used in the context of cryptocurrencies, governance, and utility within decentralized applications, and follow standards like ERC-20.
Non-Fungible Tokens (NFTs) are unique digital assets that cannot be exchanged one-to-one because each NFT is distinct. They represent ownership of digital or physical assets, with applications in digital art, collectibles, and virtual real estate, and follow standards like ERC-721.