Fungible vs Non-Fungible: What Do NFTs Really Mean?

In recent years, the term what is an NFT has become a common phrase in the digital world. From digital art to virtual game items, NFTs have moved from niche tech spaces to everyday conversations. Yet, many people still feel unsure about what these tokens truly represent, how they work and why they exist at all.

This blog breaks down fungible and non-fungible items and explains what is an NFT.

Basic Understanding of Fungibility

Before diving into what is an NFT, it helps to understand the idea of fungibility. Something is fungible when every unit is identical and interchangeable. For example:

• ₹100 note - Any ₹100 note can be replaced with another ₹100 note without losing value.
• 1 gram of gold - It does not matter which piece of gold you hold; every gram is equivalent.

These are classic examples of fungible tokens in the real world because each piece represents equal value.

What Does Non-Fungible Mean?

Non-fungible refers to something unique and irreplaceable. You cannot swap one item with another, expecting them to be equal. A few examples:

• Your personal photograph - Even if someone else has a copy, your original file remains unique.
• A piece of artwork - Two paintings by the same artist may be similar, but they are never identical.

A similar concept helps us understand fungible vs non-fungible tokens more clearly.

What is an NFT?

Now that we understand fungibility, it becomes easier to explain what is an NFT. NFT, stands for Non-Fungible Token, is a digital token created using blockchain technology to represent ownership of something unique. NFTs are essentially asking how digital ownership works.

• An NFT is proof of ownership stored on an NFT blockchain.
• It shows who owns a specific digital item.
• This ownership cannot be copied, edited, or deleted.

An NFT is not the digital item itself. Instead, it is a secure certificate of ownership that lives on the blockchain.

Where Are NFTs Used?

Most people associate NFTs with digital art, but their use cases are much wider:

1. Digital Artwork

Artists can sell digital creations with proof of authenticity. For example, a graphic designer might sell a unique digital poster as an NFT.

2. In-Game Items

Games can use non-fungible tokens to represent exclusive items in the game, like costumes, virtual land or characters.

3. Music and Media

Musicians may release limited-edition digital albums or clips.

4. Collectibles

Sports leagues, entertainment companies, and creators use NFTs to issue digital collectibles similar to trading cards.

5. Virtual Real Estate

Metaverse platforms allow users to buy virtual land, with each plot represented by a unique NFT.

Why NFTs Became Popular

People's interest in what is an NFT surged for several reasons:

• Verifiable ownership: Blockchain records provide transparency.
• Scarcity: Each token is unique, adding value for collectors.
• Creator control: Artists can earn royalty payments on resales.
• Digital identity: Many users enjoy owning rare digital items that reflect their interests.

Fungible vs Non-Fungible Tokens: Key Differences

Understanding the difference between fungible and non-fungible items helps clarify NFT meaning further.

Are NFTs the same as Digital Files?

Not quite. This is a common point of confusion when people try to understand what is an NFT.

Anyone may download an image from the internet, but that does not give them ownership. Only the person who holds the NFT token, the digital certificate, is recognised as the owner on the blockchain.

Think of it this way:

• You may have a photo of the Mona Lisa on your phone,
• But that does not make you the owner of the original painting.

NFTs apply this idea to digital items.

Risks and Considerations

While learning what is an NFT, it's also important to be aware of key considerations:

• High price volatility: NFT prices can fluctuate as trends change.
• Valuation uncertainty: The value can depend heavily on demand and uniqueness.
• Technology understanding: NFTs require basic knowledge of blockchain and digital wallets.
• Copyright concerns: Ownership of an NFT does not always mean ownership of the underlying intellectual property.

It's wise to research thoroughly and understand the NFT landscape before engaging with it.

Conclusion

By now, the idea of what is an NFT should feel more familiar. NFTs represent digital ownership using blockchain technology, letting creators, collectors and users prove rights to unique items. Recognising the difference between fungible and non-fungible items makes the entire concept clearer.

If you wish to explore digital assets and learn more about different financial instruments, Indiabulls Securities Limited (formerly known as Dhani Stocks) offers resources that help you build knowledge and make better-informed decisions.

FAQs

1. Do I need a special wallet to hold NFTs?

Yes, most NFTs require a digital wallet that supports blockchain networks used for storing and transferring tokens.

2. Can NFTs be duplicated?

You can copy the digital file, but the NFT that proves ownership cannot be duplicated because it is stored securely on the blockchain.

3. Are NFTs only used for images?

No. NFTs can represent music, videos, virtual land, tickets, game assets and other digital items.

4. Does owning an NFT give me copyright to the asset?

Not necessarily. Copyright rights depend on the terms provided by the creator, and ownership of an NFT does not automatically include intellectual property rights.