Virtual assets are fast becoming as popular as physical assets. Currently, there are two major types of virtual assets, which are cryptocurrency and non-fungible tokens (NFTs). Although both of these assets have their unique advantages and disadvantages, we can say that they are connected in some way. So, what’s the connection between NFT and cryptocurrency? Let’s take an in-depth look.
What are cryptocurrencies?
Cryptocurrencies are simply virtual or digital currencies that employ encryption to avoid counterfeiting or double-spending. Many decentralised networks are established under blockchain technology, which is a widely distributed ledger implemented by a wide network of computers.
Cryptocurrencies are generally immune to government manipulation or intervention because they are not issued by a central authority.
What are NFTs?
NFT is short for non-fungible tokens. Hence, unlike traditional cryptocurrencies like Ethereum, NFTs cannot be traded for one another. This is because each NFT is distinct and all have diverse values. Generally, NFTs are used to portray virtual objects such as art, music, as well as other virtual assets. NFTs are rapidly growing in popularity due to how easy they are to buy, sell, and trade on different decentralized platforms.
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What is the difference between NFT and cryptocurrency?
Here, we’ve compiled a list of the differences between NFT and cryptocurrency based on various factors. They include:
- Blockchain Technology: Both NFTs and cryptocurrencies rely on blockchain technology for their existence. Blockchain is a decentralized and distributed ledger that records transactions across multiple computers. It ensures transparency, security, and immutability.
- Cryptocurrencies: Cryptocurrencies are digital or virtual currencies that use cryptography for security. They function as a medium of exchange, enabling secure and decentralized financial transactions. Examples of cryptocurrencies include Bitcoin (BTC) and Ethereum (ETH). Cryptocurrencies are fungible, meaning that each unit is mutually interchangeable with another unit of the same value. For example, one BTC can be exchanged for another BTC without any difference.
- NFTs: Non-Fungible Tokens represent unique digital assets or collectibles that can be bought, sold, and owned. Unlike cryptocurrencies, NFTs are indivisible and cannot be exchanged on a one-to-one basis. Each NFT has a distinct value and can represent various forms of digital content, such as artwork, music, videos, virtual real estate, or even tweets. NFTs are typically created, bought, and sold on blockchain platforms such as Ethereum, utilizing smart contracts to define ownership and transfer conditions.
- Smart Contracts: Both NFTs and cryptocurrencies rely on smart contracts, which are self-executing contracts with predefined terms and conditions. Smart contracts facilitate the automation of transactions and ownership transfers in a secure and transparent manner. They are an integral part of blockchain technology.
- Tokenization: Both NFTs and cryptocurrencies represent a form of tokenization. In the case of cryptocurrencies, tokens represent units of value used as a medium of exchange. NFTs, on the other hand, tokenize unique digital assets, providing verifiable ownership and scarcity.
While cryptocurrencies aim to revolutionize finance and facilitate peer-to-peer transactions, NFTs focus on representing and trading digital assets in a unique and verifiable way. They have gained popularity in the art world and entertainment industry, allowing artists and creators to monetize their digital works and provide proof of ownership through blockchain technology.
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