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What Is a ‘Semi-Fungible’ Crypto Token?

Fungibility has been a consistent theme of 2021, following the meteoric rise of NFTs. But what’s the deal with “semi-fungible” tokens and how do they work?

The interest surrounding non-fungible tokens (NFTs) reached astounding levels in the first half of this year. Data from NonFungible showed NFT sales surged to over $2.4 billion in the first quarter – 20 times more than the previous three months. That momentum has showed no signs of slowing so far in the second half of the year, with the leading Ethereum-based NFT marketplace, OpenSea, experiencing a record high trading volume of $49 million on Aug. 1, up from its average daily average trading volume of $8.3 million. The average price of CryptoPunks – one of the first collections of NFTs to make their debut on Ethereum’s blockchain – also set a record during the same month of 66.919 ETH per NFT (about $220,000 at press time).

The explosive growth has kickstarted a new wave of innovation around non-fungible assets, including the emergence of a new type of “semi-fungible” token (SFT) that starts off fungible and becomes non-fungible. Let’s break down these terms.

Fungible tokens

The majority of crypto assets investors monitor and trade on a regular basis are fungible, i.e. they are easily interchangeable. For example, if two people exchanged one ether for another, there would be no loss of value and neither party would be better off than the other. That is because there is no value distinction between any two ether or any two bitcoin for that matter (excluding “tainted coins” – coins that had been previously stolen or used in illicit activities).

Fiat money like U.S dollars are also fungible. In other words, fungibility is the ability of a token (or currency) to be exchanged or replaced with other tokens of the same type resulting in no change in value.

Non-fungible tokens

NFTs are blockchain-based tokens that can be used to represent digital ownership of something unique and scarce such as artwork, collectibles, in-game times, soundtracks or virtual real estate. Because each item has a distinct value based on inherent characteristics like who created it or how rare it is, it means NFTs cannot be mutually exchanged like ether or U.S dollars. For example, a digital baseball card couldn’t be exchanged 1:1 with a plot of virtual land. The two are completely different assets. Not to mention, the digital baseball card might be part of an exceptionally rare collection, and the plot of virtual land could be in an undesirable location.

Because NFTs are stored on a blockchain, it means each token has the following characteristics:

Indivisible : It’s not possible to purchase fractions of NFTs

It’s not possible to purchase fractions of NFTs Indestructible : Cannot be destroyed or removed

Cannot be destroyed or removed Immutable: Impossible to change the underlying information once it’s stored

Impossible to change the underlying information once it’s stored Verifiable: Because NFTs are stored on public blockchains, authenticity and ownership can be easily verified by anyone at any time

What are semi-fungible tokens?

SFTs are a relatively new group of tokens that can be both fungible and non-fungible during their lifecycle. Initially, SFTs act like regular fungible tokens in that they can be traded like-for-like with other identical SFTs.

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For example, a token that represents a valid $10 Amazon voucher would have the same value as an identical voucher with the same expiration date and would therefore be interchangeable.

The distinguishing factor that makes these special types of tokens “semi-fungible” is that once they’re redeemed, the fungible tokens lose their face value. That loss of exchangeable value makes the expired tokens non-fungible.

Another way to understand this is to imagine owning a token that represented a concert ticket to see The Beatles’ last-ever performance. The ticket would have a face value and could be exchanged for another identical concert ticket, provided it was the same band on the same date and in the same seating area. Once the concert ended, the token representing the ticket would then become collectible memorabilia and have an entirely new value. It would also mean that the token could no longer be exchanged for a valid concert ticket of the same initial face value to see a different band.

That process of transforming from a fungible to a non-fungible token upon redemption is where semi-fungible tokens get their name.

How to create semi-fungible tokens

Today, it’s possible to mint SFTs using Ethereum’s ERC-1155 standard. That is one of several Ethereum token standards – blueprints for creating tokens on the Ethereum blockchain that are compatible with all other ERC-based projects.

The ERC-1155 standard was developed by blockchain game developers Enjin, Horizon Games and The Sandbox in 2017, and is essentially a combination of the ERC-20 (fungible token) and ERC-721 (non-fungible token) standards. This makes it possible to create and manage both fungible and non-fungible tokens using a single smart contract – a computer program that self-executes when certain conditions arise.

The crypto market topped $2 trillion for the first time since May, and 6 other key things that happened in crypto this past week

The top cryptocurrencies by market value saw a boost in price over the weekend. Bitcoin topped $48,000 on Saturday, which lifted the value of the entire cryptocurrency market above $2 trillion for the first time since May. Altcoins, like ether, dogecoin and cardano, jumped as well. This comes despite a relatively tough past week for the industry. From the Senate passing the infrastructure bill without an amendment to its crypto tax reporting provision to over $600 million in crypto stolen in a record DeFi, or decentralized finance, hack, here are six things worth knowing.

1. Senate passes infrastructure bill without an amendment to crypto tax provision

After contention over the language in its provision on cryptocurrency tax reporting, the Senate passed the $1 trillion infrastructure bill on Tuesday without an amendment. Now, many House democrats are urging for change, just like crypto advocates and many Senators attempted prior. Currently, the bill defines a “broker” as “any person who (for consideration) is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person,” which crypto advocates say is too broad. As written, it could potentially target miners, developers, stakers and others who do not have customers and therefore wouldn’t have access to the information needed to comply.

Since the infrastructure bill passed in the Senate, members of the House, including Reps. Ro Khanna, D-Calif., Eric Swalwell, D-Calif., Anna Eshoo, D-Calif., Bill Foster, D-Ill., and Darren Soto, D-Fla., have urged for adjustment and called for the definition of a “broker” to be narrowed. If the House amends the bill, it would then be sent back to the Senate for another vote before proceeding to President Joe Biden’s desk. But to avoid further delay, the U.S. Treasury Department plans to clarify its definition of a “broker” without amending the bill, Bloomberg reports, citing a Treasury official. The bill would remain unchanged, but the Treasury would verbally promise not to target non-brokers when later writing the tax law. Policymakers are set to meet this week to discuss.

2. A record $600 million was stolen in a DeFi hack

3. Coinbase reports that Ethereum trading volume was higher than bitcoin’s for the first time in Q2

In its second quarter earnings report released on Tuesday, cryptocurrency exchange Coinbase reported revenue that was stronger than analysts had expected. It brought in $2.23 billion in revenue and $1.6 billion in net profit. Coinbase also reported that total trading volume on the platform went beyond bitcoin during the quarter. For the first time, Ethereum trading volume was higher than bitcoin trading volume.

4. Walmart is hiring a digital currency and cryptocurrency product lead

Walmart is looking to add a “digital currency and cryptocurrency product lead” to its team, according to a recent job listing. The company is seeking to hire someone to “own and drive the digital currency strategy for Walmart.” “As an expert in digital currencies/cryptocurrency and blockchain related technologies, you will drive the vision for the product and capabilities roadmap. You will provide the leadership to identify technology and customer trends and the investments needed to build on those trends,” the job posting reads. In July, Amazon announced it was seeking to hire a similar role.

5. Mark Cuban and Elon Musk agree that dogecoin is ‘strongest’ as medium of exchange

6. Microsoft’s research department proposes use of Ethereum blockchain for anti-piracy