Difference Between NFT and Cryptocurrency

Edited by Diffzy | Updated on: September 21, 2022

       

Difference Between NFT and Cryptocurrency Difference Between NFT and Cryptocurrency

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Introduction

Nowadays, everyone uses internet transactions with mobile technology for money. There are various ways and methods to transfer money from one individual to another over the internet. Business people use many types of online money tokens, which makes transactions easy. Two common ways to do this in the present era are Non-fungible tokens (NFTs) and cryptocurrency. Both cryptocurrency and non-fungible tokens are based on the same technology and software, both gained public confidence around the same time, and both represent an alternative class of investments that are risky, primarily dominated by young buyers, sellers, and traders. Non-fungible tokens are not a type/subtype of cryptocurrency, even while cryptocurrency is considered a token rather than a coin. Although they have a lot of similarities between them, cryptocurrency and NFTs are starkly different. The public became familiar with both around the same time. (in the late 2010s). NFTs are commonly bought and sold along with cryptocurrency. Both of them tend to attract the same category of users. NFTs branched off from cryptographic culture. Both of them are built using the same programming and are encoded with the same underlying software, and both are secured in digital wallets.

NFT vs Cryptocurrency

The critical difference between NFT and cryptocurrency is that the value of cryptocurrency is purely economic, i.e., its value comes from its utility as a currency or an investment. However, NFTs have both economic and non-economic values. NFTs cannot be interchanged with each other since each NFT is different/unique. Cryptocurrencies, on the other hand, can be interchanged with one another. NFT was founded by John Watkinson and Matt Hall. The name that was used by the presumed pseudonymous person or persons who developed cryptocurrency was Satoshi Nakamoto. Both non fungible tokens and cryptocurrency use blockchain technology to carry out their transactions. However, there are differences between the two terms that have been demonstrated below.

Difference Between NFT and Cryptocurrency in Tabular Form

Table: NFT vs Cryptocurrency
Parameters of Comparison
Non Fungible Tokens
Cryptocurrency
Definition
A non-fungible token is a financial security consisting of digital data stored in a blockchain, a form of the distributed ledger.
Cryptocurrency is a type of digital currency. Records are maintained, and transactions are verified by a decentralized system using cryptography and not by a centralized authority.
Economic/Non-economic value.
Non-fungible tokens have both economic and non-economic values.
The value of cryptocurrency is purely economic
Fungibility
Non-Fungible tokens fail to have the capacity to be interchanged with each other since each non fungible token is different/unique.
Cryptocurrencies can be interchanged with one another.
Advantage
The most significant merit of a non-fungible token is that it permits the user to access the complete copyright of the data.
The most significant merit of cryptocurrency is its ability to make fast and relatively cheap transfers between two parties. This is because there is no intermediary processing data, and transfers can be made very quickly and efficiently.
Disadvantage
In non-fungible tokens, physical art will not be able to digitalize, as physical skills and activities are not accepted in non fungible token.
Cryptocurrencies are pseudo-anonymous. These transactions leave a digital trail on the blockchain. This can easily be deciphered by agencies like the Federal Bureau of Investigation (FBI). This opens the genuine possibility that governments or public authorities could track the financial transactions of citizens on the blockchain, although it would require the administration to know the individual’s account's address.
Founder
Non fungible token was founded by John Watkinson and Matt Hall.
The name that was used by the presumed pseudonymous person or persons who developed cryptocurrency was Satoshi Nakamoto.
     

What is NFT?

Non-fungible tokens are unique digital assets addressing certifiable things. Nonfungible means NFTs aren’t mutually interchangeable. Each NFT is unique, separating it from fungible tokens. NFTs are joined to explicit qualities with certificates of authenticity, which means that the digital assets cannot be traded or supplanted with each other because each NFT exists on a decentralized digital platform based on blockchain technology.

Each non-fungible token has its identification code as well as its metadata. These allow it to be uniquely identified from all other NFTs and, therefore, enable its owners to be readily traced and tracked. No NFT can be replicated. They can only be traded and be anything as long as they can be digitized.

Non-fungible tokens can be created using blockchain technology and a specialist non-fungible token marketplace to encode and further tokenize the asset that is in the digital format. Such a marketplace mints the NFT and charges a fee for the service. There are also other associated fees involved. When NFTs are sold, it attracts a fee that varies depending on the system used. Such fees are usually paid for utilizing any cryptocurrency. Thus, wannabe NFT creators and their owners will also require their cryptocurrency wallets. Once an NFT is purchased, the original creator has ownership of the intellectual rights to the work. The new owner will buy the ownership of the NFT, not the actual work it is based on.

Importance of Non-fungible tokens

  1. Market efficiency-The conversion of any physical asset into a digital asset requires a process, and it also removes intermediaries. NFTs that represent digital or physical artwork on a blockchain remove the requirement for agents. This, in turn, allows artists to connect directly with their audiences. They can also improve business processes.
  2. Identity management-Physical passports and visas need to be produced at every entry point and exit point. By converting individual passports and visas into NFTs, each of them with its unique identifying characteristics, it is possible to process the entry and exit processes for various jurisdictions. Expanding on this case, NFTs can serve an identity management purpose within the digital realm as well.

Are NFTs safe?

Non-Fungible tokens use blockchain technology, thus making them largely secure. Blockchains have a distributed nature; this makes NFTs difficult but not impossible to hack. One security risk involved with using non-fungible tokens is that the investor could lose access to their NFT if the platform hosting the NFT goes out of business.

How to purchase Non-fungible tokens?

Many non-fungible tokens can only be bought with Ether. Thus, owning some of this cryptocurrency and storing it in a digital wallet is usually the first step. Non-Fungible tokens may then be purchased via any of the online NFT marketplaces, including Open Sea, Raible, and Super Rare.

Examples of NFTs

Non-fungible tokens can digitally represent any asset. This includes online-only assets like digital artwork as well as tangible assets like real estate. Other examples include in-game items, avatars, digital and non-digital collectables, domain names, and event tickets.

What is Cryptocurrency?

A cryptocurrency is defined as a type of virtual currency that is secured by cryptography. This makes it almost impossible to counterfeit. Many cryptocurrencies involve decentralized networks based on blockchain technology, which is a distributed ledger that is enforced by a disparate computer  network. 

Cryptocurrencies are never issued by a central authority. This renders them theoretically immune to government interference or manipulation.

Various encryption algorithms and cryptographic techniques are involved in any cryptocurrency. They serve the purpose of safeguarding the networks from outside manipulation. Cryptographic methods used vary but generally include curve encryption, public-private key pairs, as well as hashing functions.

Most cryptocurrencies, by design, are decentralized networks that are based on blockchain technology. This acts like a distributed ledger maintained and enforced by an extensive computer network. The decentralized nature of a cryptocurrency theoretically makes them immune from government interference or external manipulation. Thus, primarily but not exclusively,  cryptocurrencies are attractive to the public. They also have the in-built ability to send and receive money across borders faster and cheaper than traditional forms of money transfer.

Cryptocurrencies can be bought and sold on specialist exchanges or brokers. They can even be "mined" using computers or specialized computing hardware, commonly referred to as mining rings. It is possible to make purchases using cryptocurrencies, like with traditional fiat currency. However, the high volatility and skyrocketing value of some cryptocurrencies (like Bitcoin) imply that cryptocurrencies have become a popular investment and a sought-after trading instrument for large and small investors alike.

Merits of using Cryptocurrency

  1. Decentralized nature-This sets to remove intermediary institutions like commercial banks from the transaction when it comes to payment processing between the consumer and the supplier. Because of the secure nature of blockchain, it is not mandatory to have a "middleman" enforcing, tracking, and policing transactions. Further, it implies that there is no single point of failure, like a large central bank.
  2. Ability to make fast and cheap transfers between two parties- Since no intermediary is engaged in processing the data; transfers can be made quickly and efficiently (although the time needed varies greatly).
  3. Opportunities for the remittance economy-Cryptocurrencies serve as intermediate currencies to streamline money transfers across borders. Thus, a fiat currency is converted to a cryptocurrency and transferred across borders. It is then subsequently converted into the required fiat currency. This method streamlines the process of money transfer and makes it cheaper.

Limitations of Cryptocurrency

  1. Volatility-Cryptocurrencies are extremely volatile instruments. This implies that their value can change rapidly from minute to minute, hour to hour, day-to-day. An unprepared or inexperienced investor could make huge losses if they are not careful. For some sophisticated or experienced investors, however, cryptocurrency volatility is another part of its appeal. Daily swings of several per cent, often several times a day, offer an excellent opportunity to make regular buy-low-and-sell-high opportunities for day trading. This is incredibly risky, however.
  2. Pseudo-anonymous nature- Since transactions leave a digital trail on the blockchain (which is an essential part of its function), this can be deciphered by agencies like the Federal Bureau of Investigation (FBI). This opens the genuine possibility that governments or public authorities could track the financial transactions of citizens on the blockchain. This would, however, require the administration to know your account's address.

Main Differences Between NFT and Cryptocurrency In Points

  1. A non-fungible token is a digital asset. A cryptocurrency like Bitcoin is a digital currency.
  2. NFTs have both economic and non-economic value, while cryptocurrency has only economic value. It fails to have a non-economic value.
  3. Since each NFT is different/unique, they cannot be exchanged for on another. This is clear in the name NON-FUNGIBLE. Cryptocurrencies like Bitcoin on the other hand, can be interchanged for one another as every Bitcoin as the same value.
  4. The most significant merit of NFT is that its market efficiency. It effectively removes intermediaries in trade. On the other hand, the most significant merit of cryptocurrency is that it serves as an intermediate currency to streamline money transfers across borders.  
  5. The major drawback of NFT is that physical art cannot be digitized. One of the main drawbacks of cryptocurrency is its volatility. The prices may go extremely high and unexpectedly low within the blink of an eye.
  6. NFT was founded by John Watkinson and Matt Hall. The real name of the founder remains unknown. The name that was used by the presumed pseudonymous person or group of persons who developed cryptocurrency was Satoshi Nakamoto.

Conclusion

There are various ways and methods to transfer money from one individual to another over the internet. Businesspeople use many types of online money tokens, which makes transactions easy. Both crypto and NFTs are based on the same software and technology; both entered the public consciousness around the same time. The critical difference between NFT and cryptocurrency is that the value of cryptocurrency is purely economic, i.e., its value comes from its utility as a currency or an investment. However, NFTs have both economic and non-economic values. NFTs cannot be interchanged with each other since each NFT is different/unique. This article has attempted to explain the critical differences between the two concepts. Further, it has defined the concept of non-fungible tokens in detail, describing its importance, examples, steps for purchase and safety. It has also demonstrated the idea of cryptocurrency and outlined its merits and limitations.


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"Difference Between NFT and Cryptocurrency." Diffzy.com, 2022. Sun. 02 Oct. 2022. <https://www.diffzy.com/article/difference-between-nft-and-cryptocurrency-714>.



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