Tokens in their nature can be either fungible or non-fungible, and sometimes they can be semi-fungible. Here’s a guide to learn about what semi-fungible crypto tokens are all about.
Thousands of cryptocurrencies are all different from each other in some sort of way. They all serve diverse functions in the crypto market. Meanwhile, fungibility is one of the major factors that distinguish cryptocurrencies. Cryptocurrencies in their nature can either be fungible, non-fungible, or semi-fungible, thereby serving different purposes and offering diverse functionalities in the crypto market. Non-fungible tokens and fungible tokens have taken the market as they are the most talked-about digital assets in the market. Interests in both types of crypto tokens have soared significantly in the market. Hence, it is no doubt that a vast majority of crypto enthusiasts are quite unfamiliar with a semi-fungible token. This guide will lay the most emphasis on semi-fungible tokens to help enthusiasts understand them better.
Fungible tokens are the most used and popular digital assets in the market. They are best described as crypto assets that cannot be easily interchanged. In other words, fungible tokens are digital assets that can be used to trade with each other without losing value. The value of fungible tokens cannot be altered when exchanged or traded for each other, they remain as relevant as they were prior to the trade.
Fungible tokens in the market consist of the popular and leading cryptocurrencies in the market like Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC), Tether (USDT,) and lots more. When a unit of a fungible coin is exchanged for another unit among different users, i.e one BTC for one BTC, it remains as valuable as it was prior to the trade, and none of the exchanged units is considered less good than the other.
As such transactions have no influence on the value of fungible tokens. Other circumstances can actually change the value of these tokens. Sometimes, in occasions where a unit of the coin has been tampered with either through manipulative operations or theft before being exchanged, the involved unit of the coin might tend to be considered less valuable than the other.
Apart from the popular cryptocurrencies in the market, fiat currencies like pounds or US dollars can also be regarded as fungible. This is because the currency will not lose value when exchanged with another denomination of the same currency.
Non-fungible tokens (NFTs) are the extreme opposite of fungible tokens. NFTs are decentralized digital assets that serve to acquire items, especially entertainment-based items in a digital form.
In other words, non-fungible tokens basically represent the digital acquisition of unique valuables like artworks, soundtracks, music, virtual real estate and lots more. These items usually possess different values as different people create them. As a result, they cannot be exchanged for each other without losing value. One is always considered better than the other.
Moreso, non-fungible tokens are regarded as blockchain-based tokens as they are stored on a public blockchain. Thus, the authenticity and ownership of non-fungible tokens are easily visible for anyone to verify.
Unlike fungible tokens, non-fungible tokens are non-divisible. It is impossible to divide them into separate fractions unlike Ethereum, Bitcoin and the rest. Also, previously stored information on NFTs cannot be changed or edited.
A semi-fungible token combines the features of fungible tokens alongside non-fungible tokens. More precisely, semi-fungible tokens are tokens that can operate as fungible tokens and also non-fungible ones as long as they exist and remain valid. They tend to lose their fungibility when their face value expires.
Semi-fungible tokens often operate as fungible tokens as they are tokens that possess face values and can be easily interchanged. The only distinguishing factor between fungible tokens and semi-fungible tokens is that semi-fungible tokens often lose value after being exchanged, thereby transforming into a non-fungible token.
Fungible tokens become semi-fungible in the process of transforming upon redemption. An example of a semi-fungible token is a token that represents a concert ticket. This token remains ultimately valuable and is exchangeable with another ticket designed for the same purpose without losing value until the concert is over.
This token changes value once the concert is over. Hence, you can no longer exchange it with the same concert ticket it was previously exchanged for again.
A semi fungible token is always fungible until it is redeemed, it becomes a non-fungible token afterward. An Amazon coupon is also another example of a semi fungible token.
Shifting from Non-Fungible ERC721 to Semi-Fungible ERC1155
ERC721 is the basic and most popular standard for non-fungible tokens that possess certain loopholes in different areas of its functionalities. Hence, this has got smart contract designers into considering the possibilities of shifting to semi-fungible ERC1155.
On the other hand, ERC-1155 is a new token standard for semi-fungible tokens. This design enables semi-fungible token users to carry out faster and more efficient transfers of both fungible and non-fungible tokens in batch.
ERC721 supports the transfer of only one token at a time, thereby causing a time-consuming and more costly transaction process. ERC1155 has an advantage over the NFT standard in this regard as it has been tested to support a batch transfer of multiple tokens in a single transaction within seconds.
The ERC 1155 is also regarded as the multi-token standard. The challenge faced with ERC721 has become a major factor that is fostering the development of semi-fungible tokens.
Benefits of Semi-Fungible Tokens
Semi-fungible tokens have proven to be a hedge over the vulnerabilities of non-fungible tokens. Hence, semi-fungible tokens provide undeniable benefits to the crypto sector especially the NFT community to better develop the industry. These benefits are as follows:
- Protection against accidental losses
Semi-fungible tokens protect the industry against accidental losses that users can suffer during the transfer of non-fungible tokens. Semi-fungible tokens provide an avenue for an efficient transfer of any type of token in any reasonable quantity without the fear of locking tokens in the contract. This is a common problem of non-fungible tokens which eventually leads to accidental loss of tokens.
- Better potentials for non-fungible tokens
Semi-fungible tokens allow crypto users to enjoy better potentials of non-fungible tokens. Since semi-fungible tokens curtail a lot of the challenges faced with NFTs, users who desire to trade non-fungible tokens but have been limited due to the loopholes can find a way to fix their desires with semi-fungible tokens. As a result, it is boosting a more efficient transaction process with blockchain-based tokens.
- Faster and easier transaction process
The semi-fungible tokens foster the execution of faster and less costly transactions. Traders can transfer or exchange more than one token at a time within a very short period. Hence, transactions are easy and efficient for users to carry out.
- Users enjoy features of fungible and non-fungible tokens
Since semi-fungible tokens combine the operation and functionalities of fungible tokens and non-fungible tokens, users can enjoy the benefits and functionalities of both types of tokens in a single transaction.
Semi-fungible tokens are less recognized in the crypto market in comparison to fungible tokens and NFTs. The rate of interest in the diverse tokens explains it all.
However, the need for semi-fungible tokens in the crypto industry is obvious. These tokens tend to fix the vulnerabilities that come with NFTs, hence making transactions easier and more convenient for the NFT space.
It is correct to say that the existence and further utilization of semi-fungible tokens will help boost the growth of the non-fungible tokens community and also aid further development of the industry.