Difference Between NFT and SFT: A Detailed Guide to Two Different Types of Blockchain Tokens

The digital asset world is evolving at a rapid pace. Following concepts like blockchain and cryptocurrencies, the market is witnessing the emergence of new token technologies. If you’ve heard of non-fungible tokens (NFTs) but are still unclear about semi-fungible tokens (SFTs), this article will help you understand the key differences between NFT vs SFT.

From Fungible to Non-Fungible: The Foundation of Digital Assets

To understand NFT vs SFT, first grasp two basic concepts: fungibility and non-fungibility.

Fungible assets are those that can be exchanged on a one-to-one basis without losing value. One dollar can be swapped for another dollar, and the value remains the same. Cryptocurrencies and fiat currencies are examples of this. This property allows them to function efficiently as a medium of exchange.

Non-fungible assets are entirely different. Each asset has a unique identifier and cannot be replaced on a one-to-one basis with another, even if they appear similar. An original painting cannot be exchanged for another, even if created by the same artist. This fundamental difference is what blockchain has enabled—recording and managing these unique assets through NFTs.

The Development Journey of NFTs: From Colored Coins to Digital Assets

NFTs are not a new concept. The idea of non-fungible tokens started in 2012 when Meni Rosenfield introduced “colored coins”—Bitcoin units with added information to represent real-world assets. However, Bitcoin’s limitations prevented this idea from being fully realized.

A breakthrough came in 2014 when Kevin McCoy created “Quantum”—the first NFT on the Namecoin blockchain, a pixelated octagon capable of changing colors and motion. But the real explosion happened with the launch of Ethereum’s ERC-721 standard.

Key milestones in NFT history:

• 2016: Memes began to be minted as NFTs, showcasing the creative potential of the technology
• 2017-2020: Ethereum’s ERC-721 standard became the norm, shifting NFTs to the Ethereum blockchain
• 2017: Cryptopunks were created by John Watkinson and Matt Hall, becoming some of the first high-value collectible NFTs
• 2018: CryptoKitties caused a craze within the Ethereum community, demonstrating blockchain’s support for gaming
• 2021: NFTs exploded in popularity, with digital artworks selling for millions. Digital artist Beeple set a record with a high-profile sale
• From 2022 onward: Other blockchains like Solana, Cardano, Tezos, and Flow entered the NFT market

SFT – The Hybrid Solution: Combining the Flexibility of Both Token Types

While NFTs are entirely unique assets, semi-fungible tokens (SFTs) sit somewhere in between. They can “switch” between fungible and non-fungible states depending on the context of use.

Imagine buying a concert ticket. Before the event, your ticket is fungible—you can exchange it for another ticket in the same row without loss. However, after the concert, that ticket becomes a non-fungible memento, a unique keepsake of a one-of-a-kind experience.

SFTs are built on Ethereum’s ERC-1155 standard, allowing a single smart contract to manage multiple token types—both fungible and non-fungible. This differs from ERC-20 (only fungible tokens) and ERC-721 (only NFTs).

ERC-404, ERC-721, and ERC-1155: Comparing Three Ethereum Token Standards

To understand the differences between NFT vs SFT, we need to look at the three blockchain standards they are based on.

ERC-721 Standard: The Foundation of NFTs

ERC-721 is the standard defining non-fungible tokens, and it dominates the current NFT ecosystem. Each ERC-721 token has a unique identifier and associated metadata, proving its authenticity. Developers can add complex features like provenance verification.

However, ERC-721 has a significant limitation: when sending multiple NFTs, each must be transferred separately. Sending 50 NFTs requires 50 transactions, causing network congestion and higher gas fees.

ERC-1155 Standard: The Multi-Token Improvement

ERC-1155 addresses ERC-721’s limitations by allowing a single smart contract to manage both fungible tokens (like ERC-20) and non-fungible tokens (like ERC-721). This means batch transfers are possible, reducing gas costs and network congestion.

Semi-fungible tokens (SFTs) are built on this platform, capable of switching between states based on conditions.

ERC-404 Standard: The New Capabilities of Hybrid Tokens

ERC-404 is an innovative approach developed by anonymous developers “ctrl” and “Acme.” It combines features of ERC-20 (fungible tokens) and ERC-721 (NFTs) to create tokens that can operate as both.

Although not yet officially an Ethereum Improvement Proposal (EIP), ERC-404 has attracted attention from projects like Pandora, DeFrogs, and Rug. Its potential to increase liquidity for NFTs is promising, though security concerns remain.

NFT vs SFT: A Detailed Comparison

Practical Applications: From Gaming to Real-World Asset Tokenization

NFTs are currently widely used in three main sectors: gaming (unique in-game items), digital art (paintings, creative works), and metaverse (virtual real estate). Each NFT acts as a certificate of ownership for a specific digital asset.

SFTs are mainly used in blockchain gaming, where an item may start as a fungible token (e.g., in-game currency) and become a unique NFT after certain conditions are met (e.g., an original weapon after upgrades).

One of the most promising applications for SFTs is tokenization of real-world assets (RWA). Instead of owning a property solely as an NFT or sharing it as stocks (fungible tokens), SFTs enable:

• Fractional ownership: A property can be divided into interchangeable parts initially, then converted into unique shares with distinct rights when needed
• Increased liquidity: Traditional assets are hard to trade; digital tokens make transactions easier
• Legal flexibility: The transition between states can be programmed to comply with regulations and track ownership

Future Development Directions

The emergence of NFT vs SFT marks a significant step in how we own, trade, and manage assets. While NFTs enable proof of ownership for unique assets, SFTs (along with standards like ERC-404) provide the necessary flexibility for more complex applications.

Blockchain has proven capable of not only safeguarding data but also redefining economic structures. From content creators, artists, gamers, to investors, hybrid token technology offers unprecedented opportunities.

Although SFTs are currently mostly limited to gaming applications, new standards like ERC-404 promise to expand their use cases. Continuous development of blockchain standards indicates that the future of digital assets will become increasingly diverse, flexible, and more closely integrated with real-world assets.