Among the many offshoots that have emerged as a byproduct of the current crypto-currency experiment, one of the most explosive is that of indecipherable tokens. In a matter of months, more than half a billion dollars worth of NFT has changed hands, with celebrities (from the A-list to the Z-list) eager to profit from the latest crypto craze.
But in the rush to jump on the bandwagon, few have taken the time to examine the veracity of the terminology applied to the NFT. So why think about semantics when there are millions of dollars to be made with the click of a mouse?
But instead of talking about millions, we decided to ask the question: Are the non-transferable tokens actually somewhat fungible?
A good or thing is considered to be fungible if it can be exchanged for another good or thing of similar value. This is why the US dollar is fungible, because each dollar can be exchanged for any other dollar. The same goes for bitcoin (BTC).
Fielding represents one of the four pillars of Aristotle’s concept of good money and is perhaps the most important in the creation of a functional currency. All cryptocurrencies are inherently tradable.
Irreplaceable goods are those that cannot be expected to retain the same value because of unique variations in their composition. Diamonds, for example, may be useful in a barter situation, but their slight differences in size, shape, and quality exclude them from Aristotle’s assessment as good money.
But when it comes to NMT, monetary attributes don’t matter. The idea is that each unit of an asset should be diverse, unique, exclusive and rare. This is where most of the perceived value of NMT comes from – its non-fungal nature.
On the Ethereum blockchain, NFTs are primarily based on a token standard known as ERC-1155. Tokens built with ERC-1155 guarantee immutability and as such would be useless to form the backbone of a conventional currency.
Ethereum’s regular tokens are based on the ERC-20 standard, which allows for the issuance of identical and redeemable tokens that can be used as real currency. Therefore, the ERC-20 token is not useful for the registration of a unique or rare object.
But what if… ?
But if we hypothetically created 21 million ERC-1155 NFTs – all programmed to be identical to each other – and then distributed them in free fall, wouldn’t real currency be created?
What will prevent tokens with the same value from being traded on the open market? This concept is not an invention of Cointelegraph; split NFTs are a phenomenon that had surfaced before and quickly attracted the ire of U.S. Securities and Exchange Commission, Hester Pierce.
Pearce, also known as crypto mom because of her soft stance on cryptocurrency regulation, warned that using fractional NFT comes dangerously close to violating the U.S. Securities and Exchange Commission’s securities laws. The real reason NFTs are not blue chips is that they are unique and random, Pierce said, adding that people are very creative with the types of NFTs they put out.
Conversely, the standard Ethereum ERC-20 token that many people have in their wallets from time to time is designed to be replaceable – but is that always the case?
Ethereum developer who helped create the ERC-1155 token standard, Philip Castonguay, recently posed a question to his Twitter followers who have been researching the topic. We have established that ERC-20 tokens are shadowy, but can they not be?
Castonguay gauged his supporters, and asked: Is the ERC-20 a token with a perpetual supply of 1 in the NFT?
Is the ERC-20 a token with a perpetual total stock of 1 NFT?
– Philip Castonguay (@PhABCD) April 6, 2021
Some 46.8% of respondents said yes, 36.4% said no and 16.7% declined to comment.
To refine the definition, Mr. Castonguay then asked if the ERC-20 invisible limited stock token was an NFT. Eventually, the ERC-20 token will be broken down into many (possibly infinite) decimal places, which means its usefulness as an NFT will disappear.
Isn’t the ERC-20 token a multiple (0 decimal) with a maximum perpetual margin of NFT 1? This time 72.1% answered yes, 15.4% answered no and 12.5% answered no.
Cointelegraph asked Castonguay about the use of the terms transferability and non-transferability when it comes to crypto-currency tokens. Is there really such a difference between the two? Are we just talking about two different ways to shoot a cat? He replied:
Indeed, fungibility is a spectrum, and the term NFT offers a rather binary view of things!
One social media philosopher summed it up by referring to an age-old question that has preoccupied the world’s greatest thinkers for millennia. User SafexVigilante suggested an analogy:
It’s like a chicken and egg dilemma.
– Safex Vigilante (@SafexVigilante) April 6, 2021
frequently asked questions
Why are NFTs bad for the environment?
NFT’s art has a dirty secret: Most of this data is stored in the cryptocurrency’s Ethereum blockchain, which has a heavy carbon footprint. According to De Vries of Digiconomist, the annual energy consumption is comparable to that of Ireland, which is a hidden cost for many buyers.
How do NFTs work?
Irreplaceable tokens prove ownership of a digital object – an image, sound file or text – in the same way that people have cryptographic coins. Unlike cryptocurrencies, which are identical and have the same value, NFTs are unique.
What does substitutable mean?
Flexibility is the ability of a good or asset to be interchangeable with other individual goods or assets of the same type. Flexible assets simplify exchange and trading processes because fungibility implies equal value between assets.
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