NFTs were in the spotlight of 2021 in the crypto market. Even though they are unique and can have industry-wide use cases, they have limitations. Semi-fungible tokens were developed to address the limitations of NFTs. In this article, we will explore semi-fungible tokens and their pros compared to NFTs.
Semi-fungible tokens vs. fungible tokens vs. non-fungible tokens
Fungible tokens (FTs) share the same characteristics and are not unique; for example, cryptocurrencies like Bitcoin and Ether are fungible tokens. Every Bitcoin is interchangeable with another Bitcoin, and there is no difference between them.
Non-fungible tokens (NFTs) utilize smart contracts to represent ownership of assets that are unique and different from each other. There are different types of NFTs, such as art and collectibles. For example, The merge NFT, which currently is the highest-sold NFT, is an example of an art NFT that gives a unique asset to its holders. NFTs are created on different blockchains; for example, NFTs on Stacks blockchain are created using the SIP-009 standard.
Semi-fungible tokens (SFTs) are a combination of FTs and NFTs. They start as an FT and later change to an NFT. They can be useful when batch transfers of FTs and NFTs are needed, for example, in the gaming sector, which requires the transfer of in-game currencies and unique items such as weapons. SFTs on the Ethereum blockchain are created using the ERC-1155 standard.
Top 3 Benefits of SFTs
1. Cost reduction
SFTs can reduce the transaction cost and save time because they enable the following:
- Batch Transfer, which is transferring both FTs and NFTs in one smart contract.(Figure1)
- Multi-transfer, which is transferring to more than one address in one smart contract.(Figure1)
The founding company of ERC-1155, Enjin, claims that costs can be reduced by 90%.
Figure 1: Batch and multi-transfer functionality of SFT.
2. Atomic swap
Atomic swap means swapping any number of tokens in a two-step swap of SFTs (Figure 2).
Figure 2. 2-step swap of SFTs
SFTs can be purchased or sold in fractions. That is why SFTs exhibit both NFT and FT behavior. NFTs cannot be purchased or sold in fractions which contributes to the value of SFTs.
SFTs emerged from the ERC-1155 standard, which was created by blockchain gaming developer Enjin. Video games now represent the majority of ERC-1155’s application cases. For instance, SFTs duplicate the same resources in the metaverse game Sandbox.
Tickets and vouchers
The traditional ticketing industry has been experiencing problems. SFTs can be used as redeemable tokens, and after the event has passed, they will become an NFT that behaves like a collectible. Similarly, vouchers can be issued as SFTs that transfer to an NFT after the purchase or the voucher expires.
Cem has been the principal analyst at AIMultiple since 2017. AIMultiple informs hundreds of thousands of businesses (as per similarWeb) including 60% of Fortune 500 every month.
Cem's work has been cited by leading global publications including Business Insider, Forbes, Washington Post, global firms like Deloitte, HPE, NGOs like World Economic Forum and supranational organizations like European Commission. You can see more reputable companies and media that referenced AIMultiple.
Throughout his career, Cem served as a tech consultant, tech buyer and tech entrepreneur. He advised businesses on their enterprise software, automation, cloud, AI / ML and other technology related decisions at McKinsey & Company and Altman Solon for more than a decade. He also published a McKinsey report on digitalization.
He led technology strategy and procurement of a telco while reporting to the CEO. He has also led commercial growth of deep tech company Hypatos that reached a 7 digit annual recurring revenue and a 9 digit valuation from 0 within 2 years. Cem's work in Hypatos was covered by leading technology publications like TechCrunch and Business Insider.
Cem regularly speaks at international technology conferences. He graduated from Bogazici University as a computer engineer and holds an MBA from Columbia Business School.
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