What are Fungible Tokens? How to Create Fungible Tokens on Polygon?

Introduction

In blockchain technology, one might wonder," What are tokens? Why are they essential in blockchain? What are the types of tokens? And how to create tokens?". Tokens are the digital assets of an individual which have the same functionality as any other physical asset in the real world. In the world of blockchain technology, tokens play a crucial role. They serve as the building blocks of decentralized ecosystems, representing anything from currencies and shares to unique pieces of art. Understanding the importance of tokens and their various types is essential for anyone new to blockchain.

In this article, we will dive deeper into the concept of tokens; talking about them, we will explore their significance within the blockchain framework and specifically focus on fungible tokens. We will learn how fungible tokens work and their applications and look into the process of creating and managing fungible tokens on the Polygon blockchain. Until we finish, you will have a solid understanding of tokens, their types, and how to create and add them to any pre-existing crypto wallet.

What are Tokens?

A token is like a digital representation of something valuable, like an important piece of property, a unit of currency, or a valuable share in some company. They are just like digital assets that can be bought, sold, or exchanged just like any other asset from the real world, just the catch is they are assets of the virtual world. Tokens are created and managed over a blockchain network; here blockchain network is a distributed ledger that records transactions and maintains a secure and transparent record of the ownership of that token. Whenever we buy or receive any token, the transaction performed by us during that time is recorded on the blockchain, and our ownership of the token is established.

We can use tokens in a variety of ways. For example, they can be used as a means of exchange, like digital currency. They can also be used to represent ownership of assets like a piece of real estate or a share in any company. Adding more to it, tokens can be used to motivate or encourage users to participate in the network by rewarding them with tokens for performing certain actions like verifying transactions or contributing computing power.

It can be said that tokens are an important part of the blockchain ecosystem. Hey, By the way, do you know how many types of tokens are present in a blockchain? Why don't we check it out?

Types of tokens

There are different types of tokens in a blockchain, and they can be broadly classified into two categories - Fungible Tokens and Non-Fungible Tokens(NFTs).

What are Fungible Tokens?

Fungible Tokens are digital assets that are interchangeable with each other, meaning they have the same value and can be exchanged one for one without any loss in value. For example, a fungible token could be a digital currency like Bitcoin or Ethereum, or it could be a token that represents a share in a company where each share is identical to every other share.

On the other hand, Non-Fungible Tokens(NFTs) are digital assets that are unique and cannot be exchanged one-for-one. Each NFT is distinct and represents something one-of-a-kind, like a piece of art or a rare collectible. For example, an NFT could represent a digital artwork created by a famous artist, where each artwork is unique and cannot be replicated. Each NFT is distinct and represents something one-of-a-kind, like a piece of art or a rare collectible. For example, an NFT could represent a digital artwork created by a famous artist, where each artwork is unique and cannot be replicated.NFTs have gained huge popularity in recent years with the rise of digital art and collectibles, but they also have applications in areas like gaming, where they can represent in-game items or characters.

Different types of tokens have different characteristics and use cases, moving forward, after learning about fungible tokens, let's see how a fungible token works.

Working on Fungible Token

Fungible Tokens are digital assets that can be exchanged one-for-one without any loss in value, and they have a wide range of use cases in the blockchain world. Let's see the working of fungible tokens.

• Fungible tokens are a type of digital asset that are interchangeable with one another and have the same value. They are similar to physical currencies like dollars or euros, where one unit of the currency is worth the same as any other unit of the same currency.
• Fungible tokens are typically based on blockchain technology, which allows for a decentralized and transparent ledger of transactions. To create tokens, we need to write and deploy smart contracts. Smart contracts are self-executing programs that run on the blockchain. Smart contracts define the rules and regulations of the token and automate the exchange of the token between parties.
• Fungible tokens are stored in digital wallets, which are secured using public-key cryptography. Each wallet has a unique public address and a private key, which is used to access the wallet and authorize transactions. Whenever one user wants to transfer a fungible token to another user, they create a transaction on the blockchain using their wallet to the receiver's wallet address.
• The transaction is then validated by the network of nodes on the blockchain, and once it is verified, the token is then transferred to the recipient's address, and the receiver can view the token in his wallet. The transaction is recorded on the blockchain, creating a transparent and immutable record of the token transfer.
• Fungible tokens can be used for a variety of purposes, including as a means of exchange, as a store of value, and as a unit of account. They are widely used in cryptocurrency ecosystems, where they are used to represent digital assets such as Bitcoin, Ethereum, MATIC, and other cryptocurrencies. Fungible tokens can also represent other types of assets, such as securities, commodities, and even real estate.

Fungible tokens are easy to create and use; let's look at how we can create fungible tokens on Polygon Blockchain.

Creating Fungible Tokens on Polygon Blockchain

Creating a Fungible Token on Polygon Blockchain is an easy task; all we need to create our own fungible token is to write a contract based on ERC 20 token standard and deploy that contract. Here I will be guiding you through the entire process of creating our own fungible token by writing and deploying our smart contract to the polygon testnet. Here I will be discussing how we can see that token using our metamask wallet, i.e., how we can import the newly created token to our metamask wallet and also how we can perform transactions both by using wallet and C# code. So let's begin.

Writing Smart Contracts for fungible token

The first step to creating our fungible token is with writing and deploying a smart contract. We do not need to write the smart contract from scratch. We will be using Open Zeppelin to create our smart contract.

Step 1. Visit Open Zeppelin

Visit the Open Zeppelin site; in the navbar section under the products, you will find the Contracts button. Click on that.

Clicking the Contracts button will navigate us to the Contracts page.

Here scroll down to the Coding Wizard; using the wizard is simple. First, we need to select the ERC 20 token standard. Under that, we need to mention the token name and token symbol. In this tutorial, the token name we will use is FungibleToken, and the symbol will be FTK. After giving the name and symbol, we must select a few checkboxes per our requirements. This will determine the functionality of the token. Here, we will be making our tokens mintable, pausable, and burnable. After that, we can open the code in Remix directly by clicking the button Open in Remix.

Step 2. Open Code in Remix

After clicking the Open code in Remix button, the code will be opened in Remix; here, save the code under a name and with an extension dot(.) sol.

Step 3. Compile the code

Compile the solidity smart contract using the compile button, or you can simply press Ctrl + Sto to compile the code.

After the compilation, the symbol will be containing a green tick over it, representing a successful compilation.

Step 4. Deploy the code

After the successful compilation of the contract now, it's time to deploy the contract. Select Metamask Wallet in the Environment dropdown. After that, check the address with which you are signing the contract. It should have some Matic testnet tokens to sign the transaction. To know how to set up a Metamask wallet and get some testnet MATIC in it, you can read my article "How to Connect to Polygon Network using C#". 

Here click the deploy button, then confirm the transaction from your wallet to successfully deploy the smart contract.

Step 5. Mint some Tokens

Now it's time to mint some initial tokens for the owner i.e. the address which deployed the contract. If we want, we can provide tokens to another address also. But it is a good practice to mint new tokens to the owner's id and then transferred them to any other user. To mint initial tokens, copy your account address and enter the sum of tokens that you want to mint.

Note. For the amount you want to mint, multiply it by (10^18) and write the number as an amount. It should be noted that there are 18 decimal places for Poygon tokens.

You can check the contract on PolygonScan Mumbai block explorer with the contract address.

Now you can check the fungible token in your account, just visit the block explorer and search for your address; in the ERC20 section, you will find the newly created token with the name FungibleToken and symbol FTK.

Add Fungible Token to Wallet

Now we have created our own fungible token, but just interacting with the newly created token using the smart contract is not interesting; let's connect the newly created fungible token with our wallet. Here in this tutorial, we will be using the Metamask wallet. To add the fungible token to our Metamask wallet, we need to navigate to Assets > Import Token. Now click on the Import token; this will open a pop-up window.

Now you will need to paste the contract address. Once you will deploy the contract, you can find the contract address from the Remix IDE itself and copy and paste the contract address.

After pasting the contract address, just wait for a few seconds. The Token symbol and Token decimal will be taken in automatically by Metamask. Click the Add Custom token button to add the custom fungible token that we made to the metamask wallet.

After clicking the button and adding the token, you can find your custom-made token in the Assets section of your metamask wallet.

Now you can perform token transfers and receive from your metamask wallet itself.

Applications of fungible tokens

Fungible Tokens have a wide range of applications in the blockchain space. Here are a few of the most common applications of Fungible Tokens -

1. Cryptocurrencies: Fungible Tokens are often used as cryptocurrencies. For example, Bitcoin, Ethereum, and MATIC are Fungible Tokens that can be exchanged for other tokens of the same type without any loss in value whatsoever.
2. Stablecoins: Fungible Tokens can also be used to create Stablecoins, which are digital assets with a fixed value relative to another asset, such as the US dollar. 
3. Asset-backed tokens: Fungible Tokens can also be used to represent assets like real estate, gold, or stocks. These tokens can be created by "tokenizing" the underlying asset and issuing Fungible Tokens that represent fractional ownership of that asset.
4. Loyalty points: Fungible Tokens can also be used to create loyalty points or reward systems. By creating Fungible Tokens that represent a certain number of loyalty points, businesses can incentivize customers to engage with their products or services.
5. Governance tokens: Fungible Tokens can also be used to create governance tokens that allow holders to participate in the decision-making processes of a decentralized organization. These tokens are used to vote on proposals and changes to the organization.

The applications of Fungible Tokens are constantly evolving, and new use cases are being discovered all the time. As the blockchain space continues to mature, we'll likely see even more innovative uses of Fungible Tokens emerge.

Why use fungible tokens?

Fungible tokens offer several advantages over traditional forms of exchange. Some of the key benefits of fungible tokens are,

1. Liquidity: Fungible tokens are highly liquid assets. This means they can be easily bought and sold on cryptocurrency exchanges, providing traders with access to a large market and increased liquidity.
2. Transparency: Blockchain technology provides transparency, which is important in financial transactions. Fungible tokens are built on blockchain technology, so all transactions are recorded on the blockchain, thus making it easy to track and verify transactions.
3. Divisibility: Fungible tokens are divisible into smaller units, making it possible to transact with fractional amounts. This makes them ideal for microtransactions, such as in-game purchases or small purchases online, you know right, like an amazing skin of AK47.
4. Accessibility: Fungible tokens are open to anyone with an internet connection, making them accessible to a wide audience. This is especially important in developing countries, where traditional banking services may be limited or unavailable.
5. Programmability: Fungible tokens can be programmed with smart contracts, allowing for the automation of certain functions, such as the distribution of tokens or the execution of trades.

Overall, fungible tokens provide a fast, efficient, and transparent means of exchange, with increased accessibility and programmability, making them an attractive option for a wide range of use cases.

Problems faced by fungible tokens

While fungible tokens have several advantages, they also have some drawbacks that users should be aware of -

1. Lack of Uniqueness: Fungible tokens are interchangeable, meaning each token is identical to every other token of the same type. This can be a disadvantage for use cases that require unique tokens or items, such as in-game items or collectibles.
2. Vulnerability to Hacks and Attacks: As fungible tokens are stored on a blockchain, they are susceptible to attacks from hackers. If a hacker gains access to the blockchain, they can potentially steal or manipulate fungible tokens.
3. Limited Functionality: Fungible tokens are limited in their functionality and can only be used for their intended purpose. This means that they may not be suitable for use cases that require more complex or advanced functionality.
4. Dependency on the Underlying Blockchain: Fungible tokens are dependent on the underlying blockchain technology, which can limit their scalability and interoperability with other blockchains.
5. Regulatory Issues: The use of fungible tokens may be subject to regulatory scrutiny, especially in cases where they are used for financial transactions or investment purposes. This can create legal and compliance challenges for users and businesses.
6. Lack of interoperability: Fungible Tokens on different blockchain platforms may not be interoperable, which means they can't be easily exchanged for one another. This can limit the usefulness of Fungible Tokens and create a fragmented ecosystem.
7. Tokenomics: The success of Fungible Tokens depends on their adoption and usage, which in turn depends on the tokenomics of the token. This includes factors like the total supply, inflation rate, and distribution model, which can be difficult to get right.

Everything has advantages and disadvantages both. Thus, we can say that, though fungible tokens have many advantages, they are not suitable for all use cases.

Conclusion

In summary, Fungible Tokens are digital assets that can be easily exchanged for other tokens of the same type without any loss in value. They have become an essential part of the blockchain ecosystem, with many use cases in finance and enterprise. Adopting Fungible Tokens has brought significant benefits, such as increased liquidity and lower transaction costs. In particular, the standardization of Fungible Tokens on the Polygon chain has made it easier for developers to create and deploy these tokens. Despite the challenges, fungible tokens have shown immense potential for the future of finance and enterprises.

At last, we can conclude that fungible tokens brought a considerable change to the way we think about digital assets and the potential of blockchain technology.

FAQ's

Q. What are fungible tokens in the Polygon blockchain?

A. Fungible tokens are digital assets that are interchangeable and have the same value, used for various purposes like digital currencies, DeFi, gaming, supply chain management, and rewards.

Q. How do fungible tokens work in the Polygon blockchain?

A. Fungible tokens in the Polygon blockchain are created using smart contracts, offering scalability, interoperability, security, programmability, and community-driven advantages.

Q. What can you do with fungible tokens in the Polygon blockchain?

A. Fungible tokens in the Polygon blockchain can be used for transactions, DeFi activities, gaming, supply chain tracking, and rewards and incentives, providing diverse use cases and opportunities.

Q. How to create, manage, and trade fungible tokens in the Polygon blockchain?

A. You can use a compatible wallet like MetaMask or MyEtherWallet, and interact with the smart contracts of the specific tokens. You will get the instructions to create, manage, and trade fungible tokens in the Polygon blockchain in the article.

Q. Why are fungible tokens in the Polygon blockchain gaining popularity?

A. Fungible tokens in the Polygon blockchain are gaining popularity due to their scalability, interoperability, security, programmability, and vibrant community, offering diverse opportunities for various use cases and applications.