Non-Fungible Token and cryptocurrency! Is there anyone who isn’t familiar with these terms? Well, unless someone lives under a rock, everyone has some idea about these entities. In today’s fast moving and constantly advancing world, non-fungible tokens and cryptocurrencies are spreading their roots like wild fire.
If you think your knowledge about both these terms is enough, good for you; however, if the diameter or your knowledge isn’t wide enough, reading this article is a must for you. After all, you never know if these popular terms might decide your fate tomorrow.
Without further delay, let’s explore everything about NFTs and cryptocurrencies. We will also find out how they are different from each other.
What is a Cryptocurrency?
Defining it in easy-to-understand words, a cryptocurrency refers to a type of digital or virtual currency that is secured via cryptography. Owing to its secure nature, counterfeiting it is almost impossible. By design, this virtual currency is a decentralized network that deploys blockchain technology, which is a distributed ledger managed and rendered by a wide network of computers.
Since cryptocurrencies are not issued by any central authority, they are safe from the interference of government. One can easily buy or sell cryptocurrencies on particular exchanges or brokers. Also, they can be mined via computers or mining rigs.
Similar to a fiat currency, the digital currency can be used to make real-world purchases. However, increasing value and high volatility of certain cryptocurrencies have made them a reliable investment and trading source.
What is an NFT?
Standing for non-fungible token, an NFT is a unique digital asset representing real-world items like video games, music, meme, art, GIF, tweet, etc. Unlike, a cryptocurrency, it can’t be traded. Backed by blockchain, NFT transactions are conducted online.
Code and metadata of each NFT is unique; thereby, distinguishing it from other NFTs and enabling its ownership. By allowing artists and creators to showcase their talent, earn loyal fans/followers without depending on agencies and monetize their art, NFTs have become extremely popular in the recent years. Giving users total ownership of their work, non-fungible tokens are no less than true companions for the passionate creators. Moreover, the ownership can neither be modified nor edited by anyone else, including the market owner.
How are Cryptocurrencies and NFTs Different from Each Other?
In terms of virtual transactions, cryptocurrencies and NFTs are mostly common. However, there are some differences between the two and these differences have been explained in the table below.
|1||A cryptocurrency is fungible in nature; thus, is possible to exchange.||An NFT is unique and comprises of a digital signature. Due to this reason, trading non-fungible tokens with other party is complicated.|
|2||It functions as a channel of exchange and enables the user to buy and sell goods & services. Cryptocurrency tokens are just like conventional currencies; hence, can be interchanged.||It provides one-of-a-kind tokens that help to verify ownership as well as transfer rights over digital assets.|
|3||Each crypto token has the same value as the other. Hence, it doesn’t matter which cryptocurrency is purchased. For example, value of one Bitcoin is equal to the value of another Bitcoin.||Being non-fungible, their worth can’t be calculated and goes far beyond the economics. For example, value of one NFT is different from the value of another NFT.|
|4||Cryptocurrencies have the potential to the transform the financial picture of the world.||Though NFTs look promising at the moment, their future gains can’t be determined.|
|5||Cryptocurrencies use ERC20 standard to create fungible tokens on Ethereum blockchain.||NFTs use ERC721 standard to represent the tokens.|
|6||Selling cryptocurrency is easy, as buyers are easily available.||Selling an NFT is not that easy, as matching the seller with the right buyer is not easy and takes time.|
|7||From investment point of view, buying a cryptocurrency is less risky.||Buying NFTs is considered quite risky.|
|8||Cryptocurrency is used for wealth management, low-cost money transfers, legal business practices, etc.||An NFT can be used for a number of things like gaming items, domain names, digital content, investments, and collateral, etc.|
|9||Bitcoin, Ethereum, Tether, Binance Coin, and USD coin are some of the most popular cryptocurrencies.||Silks, Decentraland, AdRunner, VeeFriends, and Axie Infinity are some of the most popular NFTs.|
So, these were some of the major differences between cryptocurrencies and NFTs. But is this all? Certainly not! Let us go further and uncover more details about both.
Pros & Cons of Cryptocurrency
Positive and negative, everything has these two aspects and cryptocurrencies are no different, i.e. it too comes with advantages as well as disadvantages. Let us check out the good side first-
Pros of Cryptocurrencies
- Two parties can easily transfer the funds without depending on any third party like banks or credit/debit cards.
- Compared to other alternatives, they are a cheaper alternative.
- Minimal processing fee is charged for funds transfer.
- Rise in Bitcoin’s demand will increase the value of cryptocurrency; thus, maintaining the market and decreasing the possibility of inflation.
- Unlike fiat currencies, cryptocurrencies are decentralized; hence, not controlled by the government.
- Safe, secure and anonymous payments are ensured.
Cons of Cryptocurrencies
To keep away from getting into problems, knowledge about the not-so-good of cryptocurrencies is equally important.
- Cyrptocurrencies are prone to illegal activities like tax-evasion and money laundering owing to their hidden nature.
- They are not accepted everywhere; hence, their use is restrictive.
- Cryprocurrency’s market is based on speculations, i.e. its price can skyrocket in a jiffy as well as crash to terrifying lows quickly.
- Losing the private key to the wallet can make things ugly for the user, as the wallet will remain locked with the coins being inside it.
- If funds are sent to a wrong wallet address, the sender cannot retrieve the coins.
- Mining cryptocurrencies requires a large amount of power and electricity, which is directly related to their market price.
Pros & Cons of NFTs
Now comes the turn to find out the advantages associated with non-fungible tokens
- NFTs generate efficiency through smart contracts, which streamlines the process and kick away intermediaries.
- They support a new & futuristic marketplace for artists, where they can directly sell their art and receive royalties.
- Certain NFTs provide perks like access to high-end group, events or associations based on their creators.
- NFTs can be used for the purpose of identity management, as they can be used as an actual passport. Having said that, individual passports can be converted into NFTs and entry and exit process for different jurisdictions can be streamlined.
- NFTs democratize investing. For instance, larger assets can be broken down into smaller digital “chunks” to allow not just wealthy but many small-scale owners also to own a stake.
And here are a few disadvantages associated with non-fungible tokens
- NFTs can be created and minted by anyone. This means that anyone can create an NFT for anything even without having its intellectual property rights.
- An NFT can be lost. Though the distributed nature of blockchain prevents hacking, but doesn’t make it 100% impossible. The secure nature of the blockchain makes it difficult to get back the stolen items.
- Users can lose access to their non-fungible tokens if the platform that hosts the NFT is no longer in the business.
- The cost of minting the first NFT is way too much. For instance, setting up an account on OpenSea costs approximately $300. Additionally, about 15% of the NFTs value has to be paid whenever an NFT is sold.
Latest Update on Cryptocurrency & NFT
While a number of countries have banned cryptocurrencies and a number of countries have adopted NFTs, Malaysia has emerged as the country that is planning to legalise both of them.
According to a report by the local news Agency, Harian Metro, Datuk Zahidi Zainul Abidin, the deputy communications and multimedia minister of Malaysia, has asked the regulators to legalise certain use cases of cryptos and NFTs.
Zahidi believes that while NFTs will attract support and participation from the youth; crypto industry is becoming popular among them. Communications ministry is planning ways that will encourage the younger citizens to adopt crypto and non-fungible tokens.
Bitcoin or NFTs: Who Could be the Winner?
In the world of blockchain technology, Bitcoin has emerged as the most successful. Approximately 80 million people have invested in Bitcoin and majority of them use it as alternative to trade or store of value. Moreover, it is best suitable for those who want to keep away from issues like tax and government regulations.
Talking specifically about 2022, Bitcoin looks like the leader despite its continuously decreasing value for three months. There’s no denying that non-fungible tokens have proved their worth and gained popularity, they are still similar to altcoins. Other than serving as a store of value, they are speculative in nature. As far as Bitcoins are concerned, they are the reason behind a number of people becoming millionaires in the past few years.
However, the tables can turn anytime; thus, NFTs can’t be underestimated.
This was all for now. We believe that you have a clear and detailed idea of both cryptocurrencies and NFTs. While non-fungible tokens are best for those who are drawn towards digital work and wish to earn money; cryptocurrencies are different and long-term investment. Depending on which entity seems worthy to you, invest ample time to understand it better and take the call.
Non-fungible tokens are unique and impossible to exchange; whereas, cryptocurrencies can be exchanged for another, as they are same. It is for this reason, cryptocurrencies are considered superior than NFTs.
If you want to do so, you can invest in NFTs in different ways. For example, buy them like an investment in a venture capital fund that invests in non-fungible tokens and crypto infrastructure. To do so, you must be an accredited investor.
Well, both NFTs and cryptocurrencies share a strange relationship. Initially, NFT market was dependent on crypto market for price action. As time progressed, both the markets drifted away from each other.
NFT coins refer to any cryptocurrency that supports the NFT ecosystem. Here’s an example for better understanding. The NFT blockchain game Axie Infinity uses it own native token, which is AXS. Thus, Axie Infinity’s NFT coin is AXS.
To purchase non-fungible tokens, establishing a digital wallet to store the cryptocurrency is a prerequisite. For example, Metamask, Coinbase, and Gemini can be connected to the marketplace where NFTs have to be purchased.