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Digital assets are taking over the market. First cryptocurrency and now NFTs, we are witnessing astronomical numbers emerging out of thin air. Nobody would have imagined intangible assets holding such value. But every valuable digital asset doesn’t fall under the same category.
And what if they use the same technology and principles?
Well, the answer is still “No”.
People usually misinterpret NFTs and Cryptocurrency as one. Just because they both are blockchain-based digital assets that don’t conclude that they are the same. Technically, their similarity ends on the blockchain.
As far as differences are concerned, we are here to break down the “NFT vs Cryptocurrency” topic.
Let’s start with the basics.
What is Cryptocurrency?
A cryptocurrency is a virtual currency based on blockchain technology. The blockchain works as a distributed ledger, ruling out any centralized authorities.
Secured by cryptography and powered by blockchain, this digital currency is impossible to counterfeit or manipulate. Thus, making it ideal for cheaper and faster transactions.
Cryptocurrencies are yet to be acknowledged by e-commerce websites, therefore, keeping them at bay from retail transactions. However, their increasing value turned them into perfect trading mediums.
Great power comes with great responsibility. The decentralized structure keeps crypto away from any government interference. To make it even worse, this information is available to criminals as well. So, you could use cryptocurrency in criminal activities and get away with it.
The government is slowly trying to get hold of cryptocurrencies but as soon as crypto loses its decentralized network, it will lose its value.
Moving on to the next one.
What is NFT?
An NFT is a non-fungible token that holds the reference to a digital file like image, audio, video, etc. Just like crypto, NFTs are stored in blockchain technology. In essence, all the information regarding the ownership, value, transaction history, etc. is stored in a distributed ledger powered by blockchain.
What is so valuable about a digital file?
Surprisingly, it is not the file that makes it valuable. It is the “proof of ownership” that comes along with it. Owning a one-of-a-kind digital asset and having a distributed ledger to prove it makes NFTs so popular. It is just like any other collectible item whose value is determined by its uniqueness and demand in the market.
Difference between NFTs and Cryptocurrency
The above-given information gave you a fair idea of what cryptocurrency and NFTs are. It’s time to look at the factors that differentiate them.
Every NFT is as valuable as the digital file it holds. Therefore, every NFT has a different monetary value. It is impossible to trade an NFT for another NFT because two NFTs can never have the same value. Also, automated transactions and blockchain make NFTs exclusively available to NFT marketplaces like OpenSea and Rarible.
Cryptocurrencies can be traded using crypto wallets as every crypto holds the same value. Every Bitcoin is equivalent to another Bitcoin and every Ethereum holds the same value as another Ethereum. You can trade them, and exchange them without losing any value.
The purpose of owning an NFT is the authenticity certificate that is available on a distributed ledger along with the proof of ownership. You might find copies of your digital file floating around the internet but you are the rightful owner of the original NFT that cannot be changed, amended, or stolen.
A cryptocurrency is just like any other currency but the transaction gateways are more secure and encrypted. It is impossible to steal or double-spend any cryptocurrency due to its distributed ledger. You can use cryptocurrency to purchase goods and services.
NFTs are comparatively less volatile than cryptocurrency because they hold an artistic value. Minting a valuable NFT is complex but as an owner, you will have a unique asset in your possession.
Cryptos are high-risk investments. It can go from a million to nothing overnight. Your choice of crypto can help you with the value as some cryptos are more stable than others.
The purpose of introducing NFTs was to revolutionalize the digital art market. It is designed to work as a convenient platform for artists as well as buyers. You get a unique NFT with proof of ownership in exchange for equivalent cryptocurrency.
Cryptocurrency covers all the loopholes in the existing transaction systems. A decentralized structure excludes any extra costs charged by central authorities. The transaction takes place on a blockchain, which makes it immune to any forgery or manipulation. Nobody can access your sensitive information.
Many other platforms are working on creating a blockchain-supported network. As of now, NFTs are limited to NFT marketplaces like OpenSea, Rarible, and Foundation.
To keep the transaction secure and efficient, there is a limited number of crypto exchange platforms like Binance, Kraken, Coinbase, etc.
NFTs bring together artistically inclined people and digital artists. Tech giant Meta is also working on bringing NFTs on Instagram. Therefore, it is a feasible investment in accordance with the current market statistics.
On the other hand, cryptocurrency is facing condemnation and fluctuation in value. It is a valuable digital asset today but it might turn into a relic of the past.
Blockchain gave rise to the two biggest digital assets and we are bound to see more of them in the coming future. Every investment holds certain risks. Calculate your risks before diving head down into the emerging digital market.