Tokenization maps real-world assets into digital tokens. Decisions to use non-fungible tokens or fungible tokens follow from the asset's inherent properties, market goals, legal status, and cultural context. Christian Catalini at MIT Sloan describes token design as matching economic attributes such as divisibility and uniqueness. Vitalik Buterin at the Ethereum Foundation clarifies that token standards exist to express those differences on-chain, for example ERC-20 for fungible units and ERC-721 for unique identifiers.
When to use NFTs
Choose an NFT when the asset requires provable uniqueness, individual provenance, or distinct metadata that cannot be interchanged one-for-one. Art, collectibles, singular real estate titles, and cultural heritage items benefit because NFTs record ownership history and can embed rights or royalties. The success of cultural projects such as NBA Top Shot, developed by Dapper Labs, illustrates how digital scarcity and provenance create new markets and social value. The consequences include stronger provenance but often lower liquidity and higher valuation dispersion; marketplaces, custodial practices, and legal title transfer must be carefully aligned with local property law.
When to use fungible tokens
Fungible tokens fit assets that are uniform and divisible: currencies, commodities, fractional shares, and tokenized funds where interchangeable units simplify trading and liquidity. The World Economic Forum highlights that standardization and interoperability of fungible tokens can reduce settlement friction in capital markets. Using fungible tokens enables easier pricing, pooling, and secondary markets, but it may obscure individual rights or provenance when those matters matter legally or culturally. Fractionalization models can combine approaches: a single NFT representing a title can be divided into fungible tradable units, though that creates legal and governance complexity.
Environmental, territorial, and regulatory nuances matter. Researchers at the Cambridge Centre for Alternative Finance University of Cambridge note that underlying consensus mechanisms affect energy and operational costs, influencing whether a token model is sustainable in certain jurisdictions. Securities regulators such as the U.S. Securities and Exchange Commission treat some tokenized instruments as regulated securities, changing compliance and custody requirements. Practitioners should evaluate uniqueness, divisibility, liquidity, regulatory classification, and local cultural or territorial expectations before selecting NFTs or fungible tokens, and consider hybrid architectures that preserve provenance while enabling tradability.