Normal tokens, such as Bitcoin, are fungible. This signifies that one is identical to the other. Then there are non-fungible tokens (NFTs), such as the Bored Ape collection or Beeple's digital artwork, which sold for a whopping $69 million.
Then there are semi-fungible tokens (SFTs), which are tokens that may be used in both realms. In comparison to cryptocurrencies and non-fungible tokens, the notion of SFTs is still in its infancy.
The fact that the token starts as a fungible asset and then converts into an NFT is what sets it apart.
Consider the following scenario:
You went out and bought a pen, which you kept in your pocket. It's fungible right now. It is possible to replace one pen with another of the same brand. However, an hour later, you may order it to transform into a feather quill that remembers that it was formerly a pen and where it was purchased.
That's pretty much how a semi-fungible token (SFT) works nowadays, especially in the blockchain gaming world. The ability of an SFT to act in a variety of ways has opened up new possibilities for how cryptocurrencies might be employed. SFTs have limited applications right now, but they're gaining traction in a world where NFTs are raking in millions of dollars for developers.
A fungible item can be replaced with an identical object with no discernible difference in functionality. Fungible items include a pair of ten-dollar bills in your wallet, three copies of the same computer file, and ten identical milk packages.
Non-fungibles, such as your car or beloved dog, is on the other end of the spectrum. They have distinct identifiers that distinguish these objects as one-of-a-kind – memory or behavior qualities that distinguish them.
It is possible to communicate successfully with the help of standards. In the actual world, examples include the description of 'what is a meter' and how this website's content is shown by your browser.
Each blockchain platform has its own set of rules for how the tokens that exist within the ecosystem should operate. To put it another way, it's the collection of rules that govern the nature of tokens.
SFTs are now minted on the Ethereum blockchain and operate according to the EIP-1155 standards. For fungible ETH tokens, the EIP-20 standard is utilized, while for non-fungible tokens, the EIP-721 standard is used.
SFTs have a unique position in the market since they start as fungible and subsequently become non-fungible.
Consider a ticket to the last match of the IPL T20 cricket season to grasp this. The ticket is worth a specified amount and may be exchanged for any other ticket from the same match in the same seating class.
After the game, the ticket is no longer valid for admittance into the stadium, but instead becomes a collector's item, a memento for fans with a different value. Using the ticket, in other words, converts it from a fungible to a non-fungible token.
Semi-fungible tokens receive their name from this. SFTs, on the other hand, do not 'expire' in the same way and swap fungibility based on pre-programmed 'smart contracts' by the SFT's creator.
According to SFT proponents, SFTs are generated by developers by purchasing Ethereum tokens and transacted by paying 'gas' fees, albeit at lower transaction costs than standard Ethereum tokens. SFTs are being tested in metaverse game contexts right now.
SFTs are supported in several gaming settings created by Enjin, Horizon Games, and The Sandbox. Fungible goods, such as in-game cash — gold bars or game dollars — and non-fungible items, such as trinkets and weaponry, can both be found in games.
The SFTs that underpin the game allow players to swap game dollars for weaponry, for example, or vice versa. The major advantage of semi-fungible tokens is that they may keep their fungibility until they are converted to NFT or vice versa, as mentioned above. It can 'remember' history or characteristics while in NFT form. For example, in a game, it may remember that the DJ console you bought is a level 89 item that had belonged to these three other players.
The advantages of NFTs, such as being verifiable, indivisible, and indestructible, may still apply to an SFT in NFT form. Bundling tokens, employing a single smart contract for a token that is both fungible and NFT, and quicker transaction speeds all serve as arguments for app developers to give the technology a try. Developers, content providers, and project sponsors have a lot of options thanks to the flexibility of semi-fungible tokens. Regular users and investors will have to wait a while because publicly accessible markets, Dapps, and metaverse settings have yet to open the SFT floodgates.