SFT Whitepaper 02 | Chapter 1: Token, NFT, and SFT

Why semi-fungibility is important to the future of our economy, network, and freedom.

1.1 What is a Token?

A token represents identity, social status, ownership, rights, or value. Historically, physical tokens have been used to facilitate transactions or establish orders. In schools, children receive “stars” or badges for good behavior; military officers or soldiers wear shoulder marks that bear ranks or other insignia; and arcade gamers use coins for playtime.

1.2 Smart Contracts and Tokens

Human civilizations rely heavily on contracts. The English philosopher Thomas Hobbes (1588–1679) noted that a world without rights and contracts leads to individuals living “solitary, poor, nasty, brutish and short” lives. Contracts are legally enforceable promises. In more granular terms, they are multistep, collaborative, and consensus-based protocols that govern the rights and obligations of their parties. In a contract, the whats, the whos, and the hows must be spelled out in writing or in other forms, and the obligations that each party must fulfill as well as any consequences for failure to do so must be clearly stated. To make a contract work, we need three things: the contract itself (the totality of the terms), an execution system (the legal and/or reputation-based system that binds a contract), and a certificate attesting the contract, or the proof of contract.

Figure 1.1 The smart contract unifies the contract itself and its execution system

1.3 What Makes a Token Fungible (and Non-fungible)?

Most crypto users have used fungible tokens, but few could identify them. In order for a token to be considered fungible, it must be able to be replaced by another identical token. A fungible token is computable, which means that multiple tokens can be added together (or subtracted).

1.4 The Semi-Fungible Token and ERC-3525

A semi-fungible token (SFT) is a type of digital asset based on blockchain technology that blends fungible and non-fungible characteristics. More specifically, SFTs combine the quantitative attributes of a fungible token and the descriptive features of a non-fungible token.

1.5 Summary

In this chapter, we have first covered the fundamentals of tokens. A token is a physical or symbolic object that represents identity, social status, ownership, rights, or value. Digital tokens act similarly to physical tokens except that digital tokens can enable digitally-based access control. A blockchain token is an advanced form of digital token because it is decentralized and offers a transparent and immutable transaction history that can’t be achieved with traditional tokens.



Co-founder of Solv Protocol, Co-author of ERC-3525 standard

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