Today, if you hear someone talking about non-fungible tokens (NFTs), there is a high chance that person also trades cryptocurrency. Both NFTs and cryptocurrencies use the same technology and software, and both are new technology concepts that not many people understand. This article is a brief differentiation between NFTs and cryptos, explaining how each works.
Non Fungible Tokens vs. Cryptocurrencies
While many crypto news sites and mainstream investors conflate NFTs and cryptocurrencies, they aren’t the same things, so why are the two confused? People started hearing about both technologies around the same time, although crypto news and reports began much earlier. Both are described as digital assets and almost always attract the same players. It’s also true that they use the same blockchain technology and are based on the same programming techniques. In addition, they are both secured in digital wallets.
What Are Cryptocurrencies?
Cryptocurrencies are digital or virtual currencies or payment/exchange systems stored in digital wallets (unlike fiat currencies stored in banks). As of March 2022, there are over 18,000 cryptocurrencies. Examples of popular ones are:
- Bitcoin (the most popular)
Cryptos are based on blockchain and cryptography technology, which makes them decentralized and almost impossible to double spend or counterfeit. Being decentralized also makes cryptocurrencies safe and immune to government manipulation, control, or interference.
As a payment system, some people use crypts as they would use physical money (as a medium of exchange) to receive payments or buy things. To most people, they invest and trade cryptocurrency like bonds and stocks (as a security or commodity) that increase in value over a given time.
What Are NFTs?
Non-fungible tokens (NFTs) are digital non-exchangeable files, units of data, or digital items that represent ownership of items (unique) like video, images, music, or clips. Like cryptocurrencies, they’re based on blockchain and traded in crypto-supported NFT markets, which essentially earns them the name crypto-art.
NFTs are unique through digital signatures that give them provable ownership. This means there can’t be two or more identical NFTs. Even if you copy an NFT art a million times, the one original signature remains and proves its ownership. Examples of popular NFTs include:
- Collectibles like trading cards, bored apes, “crypto punks,” mutant apes
- Digital art
- Tokenized memes
NFTs vs. Cryptocurrency: A Brief Comparison
NFTs and cryptos have close similarities but with differences:
NFTs have digital signatures that make each one unique to itself and different from the rest, including in value. Cryptos are currencies that have different values and can be exchanged.
Where to buy
Cryptos are bought, sold, or traded in cryptocurrency brokers and exchanges. NFTs are bought, sold, or traded in NFT marketplaces and other blockchain applications.
You can’t divide NFTs into smaller units (size or value). Cryptocurrencies can be divided into smaller or larger units.
NFTs are used in art collecting, game items, trading cards, real estate, and avatar wearables. Cryptocurrencies are used in buying NFTs, payments (for goods and services), peer-to-peer transactions, investing, international payments, and collateral for loans.
How NFTs and Crypto May Work Together
Typically, many users purchase NFT tokens using cryptocurrencies. To the best of many people’s knowledge, this is where the relationship between NFTs and cryptos ends. Since they’re both assets, users can keep exchanging cryptos and NFTs to increase each value, but they’re both as volatile as their value remains in the market.
Both cryptos and NFTs rely on the developing blockchain technology and transactions to record ownership and validate authenticity. In many cases, you’ll need crypto to buy NFTs, which is why most people confuse the two, but as outlined above, their differences are clear and separable.
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