Many people are now familiar with cryptocurrencies, i.e., digital currency that is sent and received through the internet. However, there’s another important area of cryptocurrency use called non-fungible tokens. What exactly is a non-fungible token? How does it differ from cryptocurrency?
It’s tempting to think of non-fungible tokens (NFTs) as simply another type of cryptocurrency. After all, there are many similarities between the two.
Non-fungible tokens are created on the blockchain and like any other cryptocurrency, they can be sent and used across different networks. Since they’re built on top of the same software, NFT users might wonder if both types of tokens inhabit a singular world — one that’s bigger than just crypto markets.
As with all types of investments, it’s important for novice investors to get a firm grasp on the differences between crypto and NFTs. This can help you avoid making costly mistakes.
NFTs and Cryptocurrency — now that might make you scratch your head. So, what’s the difference? And why are people buying them so much?
Cryptocurrency is a digital asset that uses cryptography to secure transactions, control the creation of new units and verify asset transfers. It is designed to operate as a medium of exchange. It is also known as virtual or digital currencies, a type of electronic money.
Cryptocurrency is decentralized and is not subject to governance or financial administration. They are usually traded on decentralized exchange platforms and can also be used to purchase goods and services. However, their volatile nature makes them a risky investment.
An NFT is a non-fungible token, which means it cannot be replaced by another identical token. Each NFT is unique and represents something of value that can be stored on a blockchain ledger.
Unlike cryptocurrency, which is fungible (meaning each unit is identical to another), NFTs represent ownership of a digital asset that can’t be replicated.
NFT is a unique ID that can be cryptographically assigned to and proven to own digital assets. An NFT, which is a cryptographic digital signature, assigns someone ownership of the Mona Lisa.
Difference between Cryptocurrency and NFTs
|Transaction recorded based on launch and transfer of ownership
|Transactions Minted through a smart contract
|Ownership is yours just like holding money
|Own the NFT but copyright still with creators
1. Fungible and Non-Fungible Tokens
Cryptocurrencies and digital currencies can be traded for each other meaning they are Interchangeable as there will be no loss to their value.
These (such as bitcoins) may be considered to be fungible crypto tokens, which either store value or serve as the medium of purchase or sale of goods. Cryptocurrencies are designed to function like money, by storing value or by allowing the buying or selling of goods.
NFTs cannot be traded for each other means non-Interchangeable as they are unique representations of real-world assets.
A non-fungible token could be used to represent a digital asset that needs to be distinguished from one another in order to demonstrate its value or its scarcity.
NFTs are used to prove the ownership of digital items, such as gaming skins, all the way up to ownership of physical assets. The proof of their existence lives in a blockchain, they can be bought and sold using cryptocurrencies, and there is not necessarily any physical asset that links them to the real world.
2. Uniform and Unique Tokens
Cryptocurrencies are also stored on the blockchain and are decentralized, but differ from NFTs by being fungible, meaning one bitcoin is equal to another and there is no way to distinguish between the two.
NFTs create unique tokens that can prove ownership of, and transfer rights over, digital assets. NFTs are generally one-of-a-kind as well, or at least one in a very limited supply, and they have a unique ID code.
Nonfungible tokens are units of data representing unique digital assets stored and verified in a blockchain. Tokens are assets that utilize smart contracts and operate on another currency’s blockchain.
cryptocurrencies, which are identical to one another and thus can serve as the medium of commercial transactions. This fungibility feature makes cryptocurrencies well-suited for use as secure mediums for transactions in a digital economy.
Non-fungible tokens are not traded on standard cryptocurrency exchanges, but rather are bought or sold in digital markets such as Openbazaar or in Decentralands LAND marketplace, the virtual game.
Most NFTs live on Ethereum’s cryptocurrency Blockchain, which is a distributed public ledger that records transactions. Most NFTs are purchased using ether, but they may also be purchased using other ERC-20 tokens, such as WAX and Flow.
Cryptocurrencies are designed to function like money, by storing value or by allowing anyone to the buying or selling of goods.
NFTs may only have one owner at a time, and their use of blockchain technology makes it easier to prove ownership and transfer tokens among owners. Unique data from an NFT makes it easier to verify and validate NFT ownership, as well as the transfer of tokens between owners. Just like cryptocurrency, NFTs also include ownership details to easily identify and transfer tokens among owners.
As digital assets, NFTs can be copied, downloaded, and shared, but the original NFT, and evidence of its ownership, live in a blockchain. NFTs are verifiable, meaning historical data stored on a blockchain verifies an NFT’s initial creator and owner.
In much the same way as prints of art from the original are made, used, bought, and sold, copies of NFTs are still valid parts of the Ethereum blockchain — they just will not have the same value as the original.
Cryptocurrencies can be used to purchase goods and services in decentralized applications, but can also be held as investments. For instance, tokens can be used for value storage, supporting decentralized applications (dApps), gaining access to blockchain services, commerce, voting rights, and more.
There are different types of tokens, including governance, utility, security, transaction, and platform tokens, depending on their properties and usage cases.
NFTs may be bought or sold by players, and contain game assets such as unique swords, skins, or avatars. An NFT is bought and sold online, representing a digital proof of ownership for any given item.
Basically, NFTs are just like any other physical collectible, but instead of getting a canvas oil painting that you can hang on the wall, you are getting a JPG file.
In fact, tokens are traditionally used to trade values within a blockchain ecosystem. If the tokenized is not fungible, then ownership of the asset is fully tracked and transparent, even when selling just the token representing part of ownership.
A Non-fungible Token (NFT) is a unique digital asset representing the ownership of a real-world object such as artwork, video clips, music, etc.
In simplest terms, NFTs turn digital works of art and other collectibles into one-of-a-kind, verifiable assets, easily traded across blockchains. They are cryptographic assets on a blockchain that have unique ID codes and metadata that differentiate them from each other.
Non-fungible tokens, or NFTs, are pieces of digital content linked on a blockchain, a digital database at the heart of cryptocurrencies like Bitcoin and Ethereum.