Two-Sided Coin: The Side of Fungible Tokens 

Fungible Tokens are digital assets whose dedicated values are identical. One token is perfectly replaceable by another because they hold the same value and properties. Likewise, in example, the regular cash; single dollar bill (assuming it's not damaged or rare) is equal to any other dollar bill. Unlikely regular cash, fungible tokens are stored in digital wallets, which are secured using public-key cryptography. Also, fungible tokens represent equal parts of a whole. They function the same way – one unit is the same as any other unit of that particular token. Rather, non-fungible tokens (NFTs), the other side of the same medallion, are unique and irreplaceable. Every NFT has its own distinct identity and value, making them impossible to directly exchange on a one-to-one basis like for fungible tokens. 

How to Say If a Toke Is Fungible? 

Like physical tokens, crypto tokens are digital units that can represent various things, like currencies or access rights. When it comes to fungible tokens there are three significant key values of crypto tokens: 

Firstly, interchangeability means one fungible token is identical and indistinguishable from any other token of the same type. It doesn't matter where it came from or when it was created, as long as it's the same kind of token, it holds the same value. Secondly, fungible token can be divided into smaller units. This divisibility, unlike fiat currencies, allows tokens for being more granular. This makes them suitable for representing things like partial ownership or micropayments. For example, a single Bitcoin can be divided into smaller units called Satoshi (one hundred million Satoshis equal one Bitcoin). Lastly, by being standardized, fungible tokens follow common set of rules and protocols that define how the tokens are created, transferred, and interacted with on a blockchain network. Advantages of having common rules: 

• Interoperability: Standardized token protocols allow different platforms and applications to recognize and interact with fungible tokens seamlessly. This fosters a more interconnected ecosystem within the blockchain world. 
• Security: Established token standards come with well-defined security measures, minimizing the risk of vulnerabilities and fraud. 
• Efficiency: Standardized protocols ensure a smooth and efficient flow of fungible tokens across different platforms, reducing complexity and transaction costs. 

Some of the most popular token standards for fungible tokens include: 

• ERC-20: This is a widely used standard on the Ethereum blockchain for creating and managing fungible tokens. 
• BEP-20: This is a standard used on the Binance Smart Chain for creating fungible tokens. 
• TRC-20: This is a standard used on the TRON blockchain for creating fungible tokens. 

Types of Fungible Tokens  

Besides its core features, different type of fungible tokens, also, have their own operations and usages. There are three types of fungible tokens: 

Cryptocurrencies

Some well-known cryptocurrencies. such as Bitcoin, Ethereum and Litecoin have the same common characteristics like interchangeability and divisibility. That means, each unit (e.g., one Bitcoin) is identical to any other unit of the same cryptocurrency and they keep same value. Also, they function with same attitudes. Moreover, each cryptocurrency units can be divided smaller units. This allows for more granular transactions. 

 
Use Cases for Cryptocurrencies: 

Cryptocurrencies can be used to purchase goods and services from merchants who accept them. They serve as faster and potentially cheaper transactions compared to traditional methods for international payments. Besides, they offer an alternative payment system for those who are unbanked or prefer a decentralized approach. However, widespread adoption as a medium of exchange is still evolving for cryptocurrencies. 

Furthermore, some cryptocurrencies are seen as a potential store of value, similar to gold. Limited supply for certain cryptocurrencies can create scarcity, potentially increasing their value over time. Offers a hedge against inflation for some investors, as the supply of many cryptocurrencies is capped and not controlled by a central authority. Despite their decentralized nature can be seen as attractive features for long-term investment, the price volatility of cryptocurrencies makes them a riskier store of value compared to traditional assets. 

Utility Tokens

Utility tokens function like digital keys or coupons within a specific platform or blockchain ecosystem. They don’t have their own blockchains. Contrary, they are created on existed tokens like Ethereum.  

Utility tokens act like the access cards that grant you entry and allow you to participate in the community's offerings. These tokens are designed to unlock specific features or functionalities within a platform or network. They can be used for things like: 

• Paying for transactions or storage on a decentralized storage network (e.g., Filecoin (FIL) for Filecoin network) 
• Accessing exclusive content or features within a gaming platform (e.g., Mana (MANA) for the Decentraland metaverse) 
• Participating in governance decisions on a blockchain project (e.g., Maker (MKR) for the MakerDAO decentralized lending platform) 

While some utility tokens may have a market value and can be traded on exchanges, they are not primarily intended to be used as a general medium of exchange like Bitcoin. Their primary purpose is to provide utility within a specific ecosystem. 

Additionally, Utility tokens can also incentivize participation and contribution within a platform. Think of them as rewards for using the platform or completing tasks. For example, a decentralized storage network might offer tokens to users who contribute storage space to the network. 

Examples of Utility Tokens in Action 

Basic Attention Token (BAT): This token is used on the Brave browser platform. Users can earn BAT tokens by viewing privacy-focused advertisements. They can then use these tokens to tip content creators they follow or purchase premium features within the Brave browser. 

Filecoin (FIL): This token is used on the Filecoin network, a decentralized storage marketplace. Users can use FIL tokens to pay for storing their data on the network or to retrieve stored data. Additionally, FIL token holders can earn rewards for providing storage space on the network. 

Binance Coin (BNB): This token is used on the Binance cryptocurrency exchange. Holding BNB tokens can provide users with benefits like discounts on trading fees, participation in exclusive token sales, and access to additional features on the Binance platform. 

 
Benefits for Businesses and Users: The use of utility tokens offers advantages for both businesses and users: 

For Businesses: They can use utility tokens to raise capital for development, create a loyal user base within their ecosystem, and incentivize user participation. 

For Users: They gain access to innovative features and services, potentially benefit from the rising value of the token, and can participate in the governance of the platform. 

Security Tokens 

They are blockchain-based representation of fractional ownership in a real-world asset similar to stocks or bonds. Because of being fractional, investing smaller and more accessible units are possible and buying entire asset is not a must. Unlike utility tokens grant access to specific products or services within a particular blockchain ecosystem and are not primarily seen as investment vehicles. Security tokens represent ownership or investment in a real-world asset and considered investment instruments. Also, they are subject to stricter regulations similar to traditional securities. Governments are working on establishing clear frameworks to ensure investor protection and market stability. However, utility tokens generally face less stringent oversight compared to security tokens while regulations are evolving. 

 
Security tokens can represent ownership in a wide range of real-world assets, including: 

Company Shares: A company can issue security tokens that represent ownership in its shares, similar to traditional stocks. 

Real Estate: A property can be tokenized, allowing for fractional ownership and potentially easier access to real estate investment. 

Fine Art & Collectibles: Owning a piece of art or a collectible can be tokenized, enabling easier buying, selling, and potentially increased liquidity for these assets. 

 
The most important part is that security tokens have the potential to revolutionize traditional financial markets in several ways. Fractional ownership through security tokens can make traditionally illiquid assets like real estate or private equity more accessible to a wider range of investors. Also, blockchain technology can facilitate easier trading of security tokens, potentially increasing the liquidity of these assets compared to traditional methods. Security tokens can potentially streamline transactions and reduce costs associated with traditional financial processes like clearing and settlement. Most importantly, blockchain technology offers a secure and transparent way to track ownership and manage transactions involving security tokens. 

 
Nevertheless, it's important to acknowledge that the security token market is still in its early stages. Regulatory frameworks are still evolving, and there are technical challenges to address. Governments are working to establish clear guidelines to ensure investor protection and market stability. Also, security token offerings (STOs) are a relatively new concept compared to traditional investment vehicles. The market is still maturing, and there might be associated risks. 

Looking More Deeply: How Do Fungible Tokens Work?  

First thing is first, fungible tokens work by selecting suitable blockchain platform with specific project or purpose. Then, developers deploy smart contract onto blockchain platform. The deployed smart contract dictates how new tokens are created, often specifying a total supply or setting up a process for generating them based on specific conditions. Before deploying, the smart contract defines the core characteristics of the fungible token, including: 

• Total Supply: The total number of tokens that will ever be created. This can be fixed (like Bitcoin) or dynamic (depending on the project's needs). 
• Divisibility: The smallest unit into which the token can be divided. 
• Transferability: Whether tokens can be freely transferred or have restrictions (e.g., requiring approval from an issuer). 
• Other Features: Depending on the project's specific needs, the contract can incorporate additional features like burning mechanisms (permanently removing tokens from circulation) or the ability to pause trading. 
   

The deployed smart contract dictates how new tokens are created, often specifying a total supply or setting up a process for generating them based on specific conditions. This could involve raising funds through an Initial Coin Offering (ICO) for utility tokens or following a predetermined mining process for cryptocurrencies. After these steps, tokens are distributed. There are various ways to distribute fungible tokens, depending on the project's goals such as: 

• Initial Coin Offering (ICO): An Initial Coin Offering (ICO) is a fundraising method used by cryptocurrency and blockchain projects. It is similar to an Initial Public Offering (IPO) in the traditional financial world, but instead of stocks, investors receive newly created crypto tokens in exchange for their investment. A fundraising mechanism where tokens are sold to early investors in exchange for traditional currencies or other cryptocurrencies. 
• Mining or Staking: In proof-of-work or proof-of-stake blockchains, users can earn tokens by contributing computing power or by locking up their existing tokens. 
• Airdrops: Free distributions of tokens to generate awareness and attract users to a new platform. 

Once deployed on the blockchain, the smart contract becomes part of the distributed ledger. Every transaction involving the fungible token, from creation to transfer, is recorded on the blockchain in a secure and transparent manner. This immutability ensures the integrity of the token system and prevents unauthorized actions. Everyone on the network can verify the history and current ownership of each fungible token. 

Smart contracts are important and beneficial part of the process. They operate autonomously and immutably on the blockchain, minimizing the risk of fraud or manipulation. All transactions involving fungible tokens are recorded on the public ledger, ensuring transparency and auditability. Additionally, smart contracts automate token creation, transfer, and other functionalities, streamlining processes and reducing reliance on intermediaries. 

Another point is that fungible tokens are stored in digital wallets. These wallets come in various forms, each with its own advantages: 
 

• Software Wallets (Hot Wallets): These are convenient apps are installed on a smartphone, a computer, or web browser. They offer easy access to owned tokens but might be more susceptible to hacking attempts if not secured properly. Popular examples include MetaMask or Coinbase Wallet. 

• Hardware Wallets (Cold Wallets): These are physical devices resembling USB drives that provide offline storage for owned tokens. They offer enhanced security but may be less convenient for everyday transactions. Examples include Ledger Nano or Trezor. 

When fungible tokens are received, they aren't physically transferred to a wallet. Instead, the wallet stores the private key that allows to interact with the blockchain and access the tokens. 

In another point is trading. Cryptocurrency exchanges play this vital role, connecting buyers and sellers in a secure and efficient manner. To this, first an account should be created on a reputable cryptocurrency exchange. This typically involves a verification process to ensure compliance with regulations. Funds are transferred to the exchange account to use for buying tokens. The exchange platform provides an interface for buying and selling fungible tokens. Orders at specific prices and quantities, can be placed similar to trading stocks on a traditional exchange. Once the tokens have been sold or transferred to a different wallet, a withdrawal from the exchange can be done and tokens can be sent to desired destination. 

Where to Use Fungible Tokens? 

In-Game Economies: 

• Virtual Currencies 
• Play-to-Earn 

Loyalty Programs: 

• Reward Points Reimagined 
• Increased Engagement 

Tokenized Assets: 

• Fractional Ownership 
• Improved Liquidity 

Supply Chain Management: 

• Tracking and Transparency 
• Streamlined Processes 

Why Do Fungible Tokens Matter? 

Fungible tokens are more than just digital assets; they're the building blocks for entirely new economic models. Here's how they're transforming the way we transact and interact financially: 

Facilitating Transactions: 

• Faster and Cheaper: Fungible tokens enable peer-to-peer transactions directly between individuals without the need for intermediaries. This can lead to faster settlement times and potentially lower transaction fees compared to traditional financial systems. 
• Programmable Money: Smart contracts governing fungible tokens can automate transactions based on predefined conditions. This eliminates manual processing and reduces the risk of errors. 

New Economic Models: 

• Decentralized Finance (DeFi): Fungible tokens are the backbone of DeFi, a growing ecosystem of financial applications built on blockchains. These applications allow users to borrow, lend, invest, and trade without relying on traditional financial institutions. 
• Fractional Ownership: Fungible tokens enable the fractional ownership of assets like real estate or artwork. This opens up investment opportunities to a wider range of participants, democratizing access to traditionally high-barrier assets. 
• In-game Economies: Games are increasingly adopting fungible tokens as their internal currencies, fostering thriving virtual economies. Players can earn tokens through gameplay and potentially use them to purchase in-game items or even exchange them for real-world value. 

Web3 Applications: 

• Ownership and Value: Fungible tokens can represent ownership of digital assets within Web3 applications, which emphasize user ownership and control of data. This can create new economic incentives for users to participate and contribute to these platforms. 
• Data Monetization: Fungible tokens can enable users to monetize their data. Users can choose to share their data with applications and receive tokens in return, creating a more user-centric approach to data ownership. 

Enabling Financial Inclusion: 

• Reaching the Unbanked: For people without access to traditional banking systems or prefer digital currecies, fungible tokens offer an alternative. They can store value, send and receive payments, and potentially access financial services through DeFi applications. 
• Lower Barriers to Entry: By eliminating intermediaries and potentially reducing fees, fungible tokens can make financial services more accessible for the underbanked population. This can empower individuals to manage their finances more effectively and participate in the global financial system. 

Why Fungible Instead of Non-Fungible? 

Key Differences between Fungible Tokens and NFTs: 

Fungible tokens (FTs) are best suited for: 

Payments: FTs are the ideal digital currency for everyday transactions, online purchases, and remittances due to their standardized value and ease of transfer. 

Trading: FTs are commonly used for trading on cryptocurrency exchanges due to their liquidity and established market prices. 

Store of Value: Some FTs, like Bitcoin, are considered a store of value, similar to gold, as a hedge against inflation or economic instability. 

Non-fungible tokens (NFTs) are best suited for: 

Digital Art: NFTs are perfect for representing unique digital art pieces, ensuring authenticity and provable ownership, and allowing artists to monetize their work directly. 

Collectibles: NFTs can represent digital collectibles like trading cards, virtual real estate, or in-game items, creating a new market for rare and unique digital assets. 

Gaming: NFTs can represent in-game items, characters, or virtual land, giving players true ownership and the ability to trade or sell their assets. 

Real-World Assets: NFTs can be used to tokenize real-world assets like real estate, luxury goods, or intellectual property, enabling fractional ownership and easier transfer of ownership. 

Identity and Certification: NFTs can represent unique identities, credentials, or certifications, providing a secure and tamper-proof way to verify authenticity. 

Choosing between FTs and NFTs depends on the specific use case and the desired properties of the digital asset. FTs are ideal for situations that require standardized value and interchangeability, while NFTs are perfect for representing unique and non-interchangeable assets with individual value and utility. 

In conclusion, fungible tokens are more than just digital assets; they are the foundational blocks of a new economic paradigm. Their interchangeability, divisibility, and standardization make them ideal for powering cryptocurrencies, utility-driven platforms, and even fractional ownership of real-world assets. 

Fungible tokens are transforming how we transact, manage value, and interact financially. They offer faster, cheaper, and more transparent transactions compared to traditional systems. From decentralized finance (DeFi) to in-game economies and data monetization, fungible tokens are unlocking a world of possibilities. 

The potential of fungible tokens is still unfolding. As the technology matures and regulations evolve, we can expect even more innovative applications to emerge. Whether you're a curious individual or a potential entrepreneur, take some time to explore the exciting world of fungible tokens and their potential to shape the future of finance and the digital economy.