Is an NFT A Cryptocurrency?: Differences and Similarities
It’s not what you think it is. Find out more here.
Although NFTs and cryptocurrencies might share similar technology, they are very much different. And I will outline both the differences and similarities in a short while.
What is the difference between an NFT and a cryptocurrency? Is an NFT a cryptocurrency?
It is possible that you have once thought about questions like this if you are an NFT or Cryptocurrency enthusiast. And one thing is for sure: you are not alone.
I, too, once asked myself related questions. But upon exploring several texts and seeking advice from experienced NFTs and Cryptocurrency investors, I gained clarity.
Therefore, this article will provide detailed responses to these questions.
First things first, let’s break the core question (Is an NFT a Cryptocurrency?) into component parts:
What’s an NFT?
An is a digital-based asset stored on a blockchain, which possesses unique identification codes and metadata that sets them apart from each other.
An NFT can take several digital forms: It can either be artwork, music, video or, funny enough, a meme.
An interesting aspect of NFTs is that central authorities such as governments or banks can not control them. NFTs are, therefore, decentralized.
What Is a cryptocurrency or a crypto coin?
A cryptocurrency is a digital asset or currency associated with a decentralized system such as a blockchain.
In other words, cryptocurrencies can be transferred quickly, cheaply, and securely from one user to another.
C entral authorities such as governments or banks also have no control over cryptocurrencies, which is a win. Thus, they are decentralized.
Now we have established what an NFT is, and what a cryptocurrency is, let’s explore the core question this article aims to answer:
Is an NFT a cryptocurrency?
Well, it depends. However, the simple answer is Yes and No. Chill out. I will explain more.
An NFT is similar to a cryptocurrency in the following ways:
- Both NFT and Cryptocurrency are digital assets or currencies
- Cryptocurrencies and NFT both rely on a decentralized system called a blockchain.
- Both NFT and Cryptocurrency possess a limited supply. For example, during a given time period, there can be only 21 million Bitcoins in circulation.
What is the difference between NFTs and Cryptocurrencies?
An NFT differs from a cryptocurrency in the following ways:
- NFTs are non-fungible (i.e. we can not easily exchange them with one another at a price), while cryptocurrencies are fungible (i.e., we can easily swap them with one another at a cost. For example, one Dogecoin is equal to another Dogecoin).
- The price of NFTs is not determined by the market. Instead, their prices are determined instead by subjective opinions about their potential. In contrast, the market determines the value of cryptocurrencies.
For example: Imagine you stumbled upon a beautiful NFT art you believe would be profitable in a few years.
Your opinion of the price’s worth will influence what you pay for such an investment. Then, the NFT becomes yours if the owner considers your bid attractive enough compared to other bidders.
Conclusion
NFTs and cryptocurrencies share both differences and similarities. Among the similarities between the two are the reliance on blockchain technology and the fact that both are digital assets.
In contrast, the key difference between both modes of investment is the fungibility of the assets and their price.
Verdict: In a way, an NFT is a cryptocurrency. However, from a different angle, it isn’t. Perspective is everything.
Originally published at https://allfinanceadvice.com on October 1, 2022.
