What are Semi-Fungible tokens? How are they Different from NFTs?

3 min read | August 19, 2021 01:22 AM AEST | By Kamalika Ghosh

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What are Semi-Fungible tokens? How are they Different from NFTs? — Image source: Marc Bruxelle, Shutterstock

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Highlights

The semi-fungible tokens (SFT) can be both fungible and non-fungible tokens (NFT).

Blockchain game developer Enjin developed SFTs using Ethereum’s ERC-1155 standard.

The cryptocurrency market is ever-changing. From the traditional coins such as Bitcoin, Ethereum to the non-fungible tokens (NFTs) to crypto ETFs, cryptocurrencies have seen several new developments. The year 2021 especially has seen the rise in the use of NFTs, which seems to have redefined the crypto market. NFT sales volumes reached a record high in June 2021, hitting $2.5 billion in the first half.

While NFTs have become a popular term in the crypto circles, another term making waves in the crypto market is the Semi-Fungible Tokens (SFT).

What are Semi-fungible Tokens

The semi-fungible tokens (SFT) can best be described as tokens, considered as both fungible and non-fungible tokens (NFT). SFT can be traded just like any other fungible token like a gift voucher with an expiration date and is interchangeable. The only condition while interchanging the token is that the new token should be of the same value. However, the SFTs once exchanged or redeemed, loses their weight and get converted into an NFT.

How does SFTs operate

Primarily, SFTs are created using Ethereum’s ERC-1155 standard. It was developed by blockchain game developer Enjin and basically is a combination of both fungible tokens and NFT standards. It is created and managed by creating smart contracts and is majorly used by the gaming industry, which primarily uses fungible tokens as a mode of transaction.

What are NFTs?

An NFT is a digital asset that consists of tradable objects such as art, music, in-game items and videos. They have been ruling the roost in the cryptocurrency market, with several artists, celebrities voicing their support to trade their memorabilia through NFTs. An NFT is a sort of stamp that the asset is unique and is not interchangeable. Cryptocurrencies, like Bitcoin, Ethereum, on the other hand, are considered to be fungible tokens.

So how are SFTs different from NFTs?

Even though the SFTs and NFTs function more or less in a similar manner but there are some differences as well. The SFTs are considered to be an advanced version of NFT. From a design perspective, it allows the generation and transfer of multiple tokens in a single transaction. In NFT, the transfer is limited to one token transaction at a time. Secondly, SFT utilises the smart contract facility, while the NFT needs a new contract every time for token transactions. Thirdly, NFTs can trigger a chain of functions, but an SFT cannot trigger a chain of operations. This can be seen as a distinct disadvantage in the development of dApps.

Conclusion

Semi-fungible tokens, just like the NFTs, is a new term in the cryptocurrency market. Majorly used by the game developers, it still has a long way to go before it can catch up with NFT. The gaming industry can make the most of the SFTs and utilise them in an optimum manner, as SFTs can easily be converted into NFTs, holding on to them gives the users the benefit of both as an NFT as well as SFT.

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