Non-Fungible Token (NFT) and Semi-Fungible Token (SFT): Understanding the Difference

The digital asset market is undergoing rapid fundamental changes faster than the development of traditional technology. After blockchain and cryptocurrencies became familiar concepts, NFT vs token fractionalized (SFT) has emerged as the next notable technology. While tokens cannot replace (NFT), which is widely known, fractionalized tokens are still relatively new. This article will help you better understand these two types of digital assets and their importance within the blockchain ecosystem.

Basic Concepts: Fungibility and Non-Fungibility

To gain a deeper understanding of NFT and SFT, we need to clarify two fundamental concepts: fungibility (fungibility) and non-fungibility (non-fungibility).

Fungibility refers to the ability to exchange two assets directly at a 1:1 ratio without losing value. Simple example: you have a $1 bill, and your friend also has another $1 bill. Whether your bill is wrinkled or clean, they still hold the same value and can be exchanged. Fiat money, cryptocurrencies like Bitcoin or Ethereum all fall into this category.

Non-fungibility represents the uniqueness of each digital asset. Each non-fungible token has its own distinct (metadata) that proves authenticity and ownership.

NFT: Your Unique Digital Asset

NFT (Non-Fungible Token) is a type of digital asset with a unique identity recorded on the blockchain. Each NFT carries distinct ###metadata( information that proves authenticity and ownership.

) Current Forms of NFTs

NFTs can represent many different types of assets:

• Digital artworks (images, drawings)
• Audio files ###songs, podcasts(
• Video content
• Virtual real estate and land in the metaverse
• Items in blockchain games
• Digital collectibles and memorabilia

The main purpose of NFTs is to protect the copyright of digital creators, ensuring they can earn income from their works without fear of unauthorized copying or losing control.

) The Development Journey of NFTs

The concept of NFT vs token traditionally started in 2012, not in 2021 as many think. Meni Rosenfeld first proposed the idea of “colored coins” on Bitcoin—a way to attach specific attributes to monetary units. However, Bitcoin’s structural limitations prevented this idea from being realized.

Important milestones in the history of NFTs:

• 2014: “Quantum”—the first NFT minted on the Namecoin blockchain, a pixel octagon capable of changing colors
• 2016: Memes began to be minted as NFTs
• 2017-2020: Ethereum became the main platform as the ERC-721 standard was widely adopted
• 2017: Cryptopunks launched on Ethereum following the success of Rare Pepes
• 2018: Cryptokitties caused a craze and boosted NFT popularity
• 2019: NFT games and metaverse projects like Decentraland formed
• 2021: The NFT market exploded, with famous auctions like Christie’s starting to sell NFTs; a work by Beeple sold for a record high price
• 2021-2022: Other blockchains like Cardano, Solana, Tezos, Flow began supporting NFTs; Facebook rebranded as Meta and focused on the metaverse

SFT: A Flexible Hybrid of Both Worlds

Semi-Fungible Token ###SFT### is a hybrid digital asset—combining features of both fungible and non-fungible tokens. The special point is that SFT can switch between these two states depending on usage conditions.

( Easy-to-Understand Real-Life Example

Imagine you buy a ticket to a live concert:

• Before the event: Your ticket is a fungible token. You can exchange it with any other ticket in the same seat category without losing value
• After the event: The ticket becomes a unique memento—non-fungible token. It carries memories of the performance, its rarity based on the artist’s fame, and sentimental value

This mechanism allows SFT to operate more flexibly than NFTs in complex use cases.

) Technical Foundation: ERC-1155

SFT is built on the ERC-1155 standard of Ethereum—a multi-token standard combining the advantages of:

• ERC-20: Standard for fungible tokens (cryptocurrencies)
• ERC-721: Standard for non-fungible tokens ###NFTs(

The strength of ERC-1155 is that a single smart contract can manage multiple types of tokens simultaneously, instead of deploying separate contracts.

) Origin of SFT

The ERC-1155 standard was developed by Enjin and Horizon Games, aiming to manage blockchain game assets using a single smart contract. The Sandbox is also one of the pioneering platforms using this standard.

New Standard: ERC-404 Changing the Game

ERC-404 represents a completely new approach within the Ethereum ecosystem. Developed by anonymous programmers “ctrl” and “Acme,” this standard aims to directly combine the features of:

• ERC-20 (Fungible Token)
• ERC-721 ###NFT - Non-fungible Token###

( Unique Features of ERC-404

Unlike previous standards, ERC-404 allows a token to operate as a fungible token in some situations and as a non-fungible token in others. This opens up:

• Increased liquidity for NFTs
• The ability to trade fractional parts of NFTs
• More flexible market incentives

) Concerns About ERC-404

Despite its enormous potential, ERC-404 has not yet undergone the official Ethereum Improvement Proposal ###EIP### process. It lacks:

• Community-audited security
• Security review
• Public validation

Launching this standard unofficially has raised concerns about:

• Security risks
• Rug pull dangers
• Unintended consequences from smart contract mechanisms

However, projects like Pandora, DeFrogs, and Rug have begun experimenting with ERC-404, indicating growing interest in hybrid token models.

Detailed Comparison: ERC-404 vs ERC-721 vs ERC-1155

( ERC-721 Standard: The Foundation of NFTs

ERC-721 is the most popular standard for NFTs today. It clearly defines the functions and capabilities of non-fungible tokens. Any NFT on Ethereum must comply with the rules set by ERC-721.

Advantages:

• Allows adding complex features like provenance verification
• Enhances asset uniqueness and authenticity

Disadvantages:

• Each transaction can only send one NFT
• Sending 50 NFTs requires 50 separate transactions
• Causes network congestion and higher gas fees

) ERC-1155 Standard: Multi-Token Solution

ERC-1155 is an improvement, allowing a single smart contract to support multiple types of tokens (both fungible and non-fungible).

Advantages:

• Executes multiple transactions at once
• Reduces gas fees and network congestion
• Supports batch transfers ###resolving issues like sending to wrong addresses(
• More flexible in asset management

Main application: Managing assets in blockchain games

) ERC-404 Standard: A Breakthrough

ERC-404 combines the strengths of both standards, allowing:

• Tokens to act as both fungible and non-fungible
• Flexible state switching
• Creating entirely new digital asset models

Comprehensive Comparison Table

Practical Applications of NFTs and SFTs

( Which Industries Are NFTs Changing?

Currently, NFTs mainly focus on three sectors:

• Art and collectibles: Digital works bought and sold at high prices
• Blockchain gaming: In-game items, unique characters
• Music: Exclusive releases, NFTs from famous artists

However, NFTs have the potential to expand into almost all industries, as any real-world asset can be tokenized into a rare collectible.

) Main Fields for SFTs

Currently, SFTs are most widely used in the blockchain gaming industry. They represent all in-game assets that can be both fungible and non-fungible.

However, the development of SFTs promises to extend into many other sectors, especially:

• Real estate management
• Loyalty programs
• Event tickets
• Limited rights and privileges

SFT and Tokenization of Real-World Assets (RWA)

One of the most promising applications of SFTs is the tokenization of real-world assets (Real-World Assets - RWA). SFTs offer a unique approach:

• Fractional ownership: Allow multiple investors to own a part of a large asset (such as real estate)
• Increased liquidity: Switch between interchangeable (easily tradable) and unique value-holding states
• Lower participation barriers: Small investors can own fractions of assets typically accessible only to the wealthy
• Regulatory compliance: Transition mechanisms can be designed to adhere to legal requirements

Platforms Supporting NFT Ecosystem

Major blockchain platforms supporting NFT vs token hybrid standards include:

• Ethereum: The most popular platform with ERC-721, ERC-1155, and ERC-404
• Cardano, Solana, Tezos, Flow: Alternative blockchains with high performance and low fees

Choosing a platform depends on specific needs regarding speed, cost, and compatibility.

Conclusion: The Future of Digital Assets

Asset tokenization is rapidly becoming the most important area in crypto. The NFT ecosystem is expanding into other industries beyond gaming and art. Blockchain technology makes verifying ownership and protecting data feasible in unprecedented ways.

NFTs and SFTs carry a wave of innovation:

• Creating new ways for content creators to earn income
• Helping artists, musicians, and game developers control their works
• Broadening access for customers and global fan communities

While SFTs currently have limitations in gaming, they are expected to find wider applications soon. With the development of new standards like ERC-404, the future of digital assets promises to be incredibly exciting and full of untapped possibilities.