When to use nonfungible tokens and possibility to interchange tokens with different standards

Question

I'm little bit familiar with Blockchain and ERC-20 standard. Now I started learning about ERC-721 and having a lot of confusion.

Let's take an example of music artist token platform. Any music artist can register with the platform and create their own tokens with defining some properties like name, symbol, etc. A music fan can purchase those tokens from an artist and trade later on.

Now the questions are

1) Can we transfer nonfungible tokens from one wallet to another wallet?
2) Why we should use nonfungible token here?
3) Is it possible to interchange ERC20 and ERC721 tokens?
4) Can nonfungible token price change after its creation?
5) Do we need ERC20 tokens to create a ERC721 tokens?

Answer 1

ERC721 is used for unique assets. So something which nobody else can possess. A music song is not a unique asset: multiple people can own (a copy of) the same song. But for example original copyrights to the song might be unique: that asset can be owned by only one person. Each token has a (probably) different value and they are not interchangeable.

But ERC20 is used for non-unique assets. This can be compared to traditional fiat money: whoever owns 1 of your ERC20 tokens is comparable to owning for example 1 US dollar. Two tokens are twice as valuable as one. You can transfer any amount of the tokens and each one of them is equally valuable.

Now, to your questions:

1) Yes. They can be transferred very similarily compared to ERC20 tokens. But you don't transfer many of them at the same time: you typically only transfer one token.

2) You probably shouldn't. As I said your example is not a very good one for ERC721.

3) Not directly. Of course if both parties agree that for example 1 of your ERC721 tokens is worth 100 of some ERC20 tokens you can exchange them through some exchange platform. So you need some intermediary to perform the trade (it can be an autonomous contract). This is similar to exchanging fiat to ERC20 or ERC721: you can't either fiat into a token contract to buy tokens but you need to go through an exchange.

4) If we exclude the possibly initial crowdsale period (ICO) then the price of any token depends on supply and demand. If many people want to buy some ERC20 or ERC721 tokens their value goes up.

5) ERC721 and ERC20 tokens are not bound to each other in any way. They are completely separate. Of course, as stated in answer 3 both parties may agree to exchange one asset for another and in this case they may be ERC20 and ERC721.