Not sure I follow. You can in fact buy giftcards with a Target giftcard. Can't buy a AMEX/Visa etc., but you can buy steam giftcards, taco bell giftcards, prepaid cellular phone cards, Target giftcards etc.
Yeah, this scenario makes absolutely no sense. You can absolutely buy one Target giftcard with another Target giftcard.
To the best of my knowledge there's no difference in how they're encoded either.
Maybe in your store this possible. However, in my region/store, you cannot purchase gift cards with a gift card. This has been policy everywhere I have worked, within Target and at a couple other retail stores...maybe it has something to do with state laws?
I can also say that the gift cards we give for no-receipt returns are different than normal target gift cards. A GSA showed me and compared the two cards. The return cards are much thinner and flimsier looking than the normal gift cards, and she told me that they are, in fact, quite different. These gift card redemption machines will NOT accept the return gift cards because they are different.