Fungible and non-fungible tokens explained

In crypto, a token is a record on a blockchain that says who holds a particular unit of something. The word covers a wide range: coins used inside an app, digital art, game items, event tickets and membership passes. To a beginner these look unrelated, which is why the term confuses so many people who first meet it in the news. What they share is the mechanism. A program called a smart contract keeps a public list of which address holds which tokens and enforces the rules for moving them. The most useful first question about any token is whether each unit is interchangeable with every other unit. The answer sorts tokens into two broad families, fungible and non-fungible, and the rest of this page explains both.

A fungible token is interchangeable unit for unit. If two people each hold one unit, they can swap them and nobody has gained or lost anything, much as two identical coins in a drawer are equal. The common Ethereum standard for this design, called ERC-20, defines the basic functions every such token offers: check a balance, send some units, and approve another program to spend on your behalf. A non-fungible token, or NFT, works differently. Each one carries its own identifier, so it is individually unique and verifiably scarce. For these tokens it matters which one you hold, not only how many. A contract still records ownership publicly, but it records each token separately.

Consider a made-up example. Lena joins an online game that issues a fungible token for in-game credits and a unique token for each special sword. She and a friend can trade credits freely, since one credit is the same as any other. Her sword is different. Its identifier points to one item with its own history, and her friend's sword is a separate token even if the pictures look alike. Later Lena wants to give the sword away. She asks the game's contract to transfer that specific identifier to her friend's address, and the public record updates. The credits never needed that care. Only the sword had to be named exactly, because only the sword was one of a kind.

Several common mistakes follow from mixing up the two ideas, and each has a simple cause. People assume that a unique token proves ownership of the thing it depicts, but a token is only a record. Whether it carries any rights to a picture, a song or a ticket depends on the terms that come with it. Others treat the words fungible and unique as a verdict on value or legality. They are not. The words describe technical design only, and say nothing about price, quality or whether a given token counts as a security. Another trap is a fake token that copies the name and image of a real one, so the address of the contract, not the label, tells you which token you are looking at.

A few checks apply to any token. What does the token represent, and who says so? Is it fungible or unique, and does the project describe what the holder receives in writing? Which contract issues it, and does the address shown on the project's official site match the one you are about to use? Where does the artwork or file live, and could it be changed or removed later? What do the terms say about licensing, if the token points to creative work? Reading the answers in the open takes time, since the terms are often long and the wording is technical, but they are the difference between holding a record and holding an enforceable right, and many tokens offer only the record.

Plain explanations of both families are published by ethereum.org, including the NFT overview and the ERC-20 standard page. They describe the technology and do not judge any particular token. Whether a token is treated as a security, a commodity, a collectible or something else depends on the law of each country and on the facts of each case, so this page does not decide that. For rules that apply to you, check the website of your own financial authority. This page is general education, not legal, tax or financial advice, and it names no token, platform or issuer on purpose.

• Fungible means each unit is interchangeable; non-fungible means each token is unique and tracked alone
• A token is a record; whether it carries any rights depends on the terms that come with it
• Fungible or unique describes the design only and says nothing about value or legal status