If you meet someone making money from trading non-fungible tokens, chances are good that person is also involved in crypto. Both cryptocurrencies and non-fungible tokens (NFTs) are built on the same technology, entered the public consciousness around the same time, and appeal to a similar demographic.
The advent of blockchain technology and how it is used can compare to how people felt about the internet in its earliest days — which provoked different reactions in people. And just as people reacted skeptically to online technology at first, so too do they express doubts about blockchain-based innovations today.
The two biggest unknowns related to technology — cryptocurrencies and non-fungible tokens (NFTs) — have led us to create this simple explainer of what they are, how they interact with each other, and the main differences between these two new forms of digital assets.
Both are forms of digital assets based on blockchain technology, although cryptocurrencies like Bitcoin came first.
Forbes reports that NFTs are commonly traded along with cryptocurrency, and both groups tend to attract the same kind of players — those involved in crypto culture.
Further, both are digital currencies encoded with the same software, but they differ in how you access them and who supports each technology.
What are cryptocurrencies?
Bitcoin and other cryptocurrencies are digital payment systems that are not issued by governments or backed by a central authority like a bank. There are more than 19,000 of them, according to Forbes.
The value of a traditional currency is based on trust — in the bank, government, or FDIC insurance. However, crypto’s value comes from a cryptographic way of proving transactions that are verified and recorded on special databases called blockchains.
Although concerns about the future of crypto still exist, it is worth noting that Web3 is unlikely to disappear anytime soon. The technology behind it — decentralized apps (DApps) — is just too useful and valuable for society.
Now that you have an understanding of the basics, let us dig deeper into the differences between crypto and non-fungible tokens by examining their characteristics.
What are NFTs?
Non-fungible tokens, or NFTs for short, are similar to cryptocurrencies in the sense that they are both digital and tokenized assets. But unlike other forms of currency like Bitcoin and Ethereum — which are interchangeable when it comes to value — NFTs have unique attributes that set them apart from one another.
NFTs bear a close resemblance to physical currency but differ. The objects people purchase with NFTs are designed precisely for their uniqueness — think of a special physical object you own. It is one-of-a-kind. It might be a painting or collector’s item like a basketball card — or even something as simple as your favorite book’s first edition print signed by the author!
Because they are each unique, these things are non-fungible: If someone asked to trade your autographed first edition book for a fifth edition reprint with no signature on it, you would refuse. While both contain the same words, their content is not interchangeable.
One of the blockchain’s greatest benefits is that it makes this kind of transformation possible. And it has huge ramifications — one being how artists can be properly and directly compensated for their work. Because of their unique nature, NFTs can virtually represent any form of digital content. Songs, GIFs, and JPEG files are just a few examples — the applications for non-fungible tokens are limitless!
Difference between NFTs to cryptocurrencies
NFTs cannot be traded for other NFTs. However, cryptocurrencies can be exchanged when their owners want to do so — no cryptocurrency loses any value in the process of being exchanged with one another.
Further, NFTs are only worth what people are willing to pay for them — often much more than the physical versions of the same work. Well-established artists will turn their existing work into NFTs and sell it at an outrageous price, precisely because they already have a following. On the other hand, the value of cryptocurrency is based purely on economics — its utility as a currency or investment drives the price up.
Cryptocurrencies and non-fungible tokens have changed how we view, appreciate, create and distribute art by changing our ideas about economy and value in society. Although Web3 is a dynamic and risky place, it cannot be denied that it is also exciting and inspiring.