Fungible versus non-fungible tokens

A one-hundred-real banknote is worth the same as any other one-hundred-real banknote. You do not care which one you receive. The deed to a specific apartment, however, cannot be swapped for the deed to another apartment, even in the same building. The first is fungible. The second is not.

This old distinction in law and economics now has a digital version. In asset tokenization, the first design decision is whether the token will be fungible or non-fungible. This article explains the concept, the most widely used technical standards and what the choice changes in practice and in regulation. Sources were consulted on October 8, 2026.

What fungibility is

The Brazilian Civil Code defines it: “Fungible are movable goods that can be replaced by others of the same kind, quality and quantity” (Civil Code, art. 85). Money, bags of soybeans of the same type and shares of the same class of a company are classic examples.

On a blockchain, the idea is the same:

• A fungible token has no individual identity. What matters is the balance: how many units each address holds. One unit is the same as any other.
• A non-fungible token, or NFT, has its own identifier. What matters is exactly which token belongs to whom.

The ethereum.org standards page sums up the split: ERC-20 is for “fungible (interchangeable)” tokens, and ERC-721 for non-fungible tokens, such as a record linked to a piece of art or a song (ethereum.org, Token Standards).

The technical standards on Ethereum

A token on Ethereum is a smart contract: a program recorded on the blockchain that keeps track of who owns what and executes transfers. ERC (Ethereum Request for Comments) standards define the functions this program must offer, so that wallets and platforms can handle any token without specific adjustments. To understand the network itself, see what Ethereum is.

ERC-20: the fungible standard

Proposed in November 2015 by Fabian Vogelsteller and Vitalik Buterin, ERC-20 has final status (EIP-20). It requires functions such as:

• totalSupply: the total number of units issued;
• balanceOf: an address’s balance;
• transfer: sends units to another address;
• approve, allowance and transferFrom: authorize a third party (another contract, for example) to move up to a certain amount on the holder’s behalf.

Note that no function asks “which unit”. The contract only knows balances. Most stablecoins and tokens representing fractions of an asset follow this model.

ERC-721: the non-fungible standard

ERC-721, from January 2018, also with final status, standardizes the control and transfer of NFTs (EIP-721). Each token has a unique identification number within the contract, which does not change during the contract’s life. The ownerOf function answers who owns a specific token.

The standard’s own text gives examples of what an NFT can represent: physical property, such as houses or unique artworks, virtual collectibles and even “negative value” assets, such as loans.

Two technical details matter for buyers:

• Metadata usually lives off the blockchain. The optional tokenURI extension returns an address that can point to a file describing the item. The standard allows this address to be mutable, and notes that storing all metadata on-chain was considered too expensive.
• The standard is purely technical. ERC-721 describes a software interface. It does not deal with legal ownership or with rights over the item represented.

ERC-1155: both types in a single contract

ERC-1155, from June 2018, allows several types of token to be managed in a single contract, fungible, non-fungible or both (EIP-1155). Each identifier can have its own quantity and metadata. An identifier with a single unit behaves like an NFT; one with thousands of identical units, like a fungible token.

The stated motivation is efficiency: with ERC-20 and ERC-721, each token type or collection requires a separate contract. ERC-1155 also allows several types to be transferred at once, which reduces transaction costs.

What the choice changes in practice

Based on the standards above, the difference shows up in four points. The breakdown is the editorial team’s.

Aspect	Fungible token (ERC-20)	Non-fungible token (ERC-721)
What the contract records	Balance per address	Owner of each identifier
Divisibility	Can have decimal places	Each token is a whole unit
Price formation	One unit is worth the same as another	Each item has its own price
Typical use	Currencies, asset fractions, points	Unique items, certificates, collectibles

Liquidity. Identical units can be pooled in the same order book, which makes it easier to find a buyer. A unique item depends on someone being interested in that particular item. This does not guarantee liquidity for either: a fungible token with no active market can also be left without a buyer.

Valuation. An NFT has no continuous price quote. Its value depends on comparison with similar sales and on current interest, and it can fall to zero.

Fractionalization. To split a unique asset among many people, the common route is to issue fungible tokens representing fractions of it. The topic is covered in fractional ownership of assets.

The label does not define regulation

This is where the technical distinction is often misused. Calling a product an NFT does not take it out of regulators’ reach. The three examples below show the criterion.

Brazil. CVM Guidance Opinion No. 40, from 2022 (the CVM is Brazil’s securities regulator), classifies tokens by function: payment, utility and asset-referenced. NFTs appear as an example of the third category, alongside security tokens and stablecoins. The CVM states that an asset-referenced token “may or may not be a security”, depending on the economic substance of the rights given to the holder. The opinion also says that the fact that an asset is digital or based on a distributed ledger is irrelevant to that classification. More on the limits in Brazil in tokenization and capital markets.

European Union. The MiCA regulation does not apply to unique and non-fungible crypto-assets, but its recitals add caveats (Regulation (EU) 2023/1114, recitals 10 and 11). Fractions of a unique asset are not considered unique. Issuance in a large series or collection is an indicator of fungibility. And a unique identifier alone is not enough: the asset or right represented must also be unique. The text asks authorities to look at substance, not at the label given by the issuer. See also what MiCA is.

United States. In August 2023, the SEC found that NFTs sold by the company Impact Theory were investment contracts, and therefore securities, offered without registration (SEC, August 28, 2023). According to the SEC, the company raised about US$ 30 million. Without admitting or denying the findings, it agreed to pay more than US$ 6.1 million in disgorgement, interest and penalties, and to destroy the NFTs it still held.

The pattern common to all three: what counts is the right the token gives and the promise made to the buyer, not the technical interface.

Risks of each model

Tokenizing does not eliminate the risk of the asset, as we explain in why tokenizing an asset does not eliminate risk. Some risks are more tied to each format:

• Total loss. Both a fungible token and an NFT can lose all their value, whether through failure of the issuer, of the asset represented or of the market.
• Off-chain metadata and files. If the address the NFT points to goes offline or is changed, the token may stop showing what you thought you had bought.
• Rights not guaranteed by the token. The token records who holds an identifier or a balance. The right over a physical good depends on contract, custody and, in the case of real estate, the official registry.
• Broad approvals. In ERC-20, the approve function lets a third party move your tokens up to the authorized limit. An approval given to a malicious contract can be used to drain the wallet. See phishing in digital wallets.
• Illiquidity. A unique item may have no buyer; a thinly traded fungible token may not either.

What to take from this article

• Fungible is what can be swapped for an identical item. Non-fungible is what has its own identity.
• On Ethereum, ERC-20 handles balances, ERC-721 handles unique items and ERC-1155 combines both in one contract.
• The standards are technical: they say nothing about legal ownership of the asset represented.
• Regulators in Brazil, the European Union and the United States look at the rights and the promise made to the buyer. Splitting a unique item into identical tokens, as a rule, makes it fungible.