What Are the Main Differences Between Cryptocurrency and NFTs?

Cryptocurrency---NFT

Cryptocurrency and NFTs have a lot in common, but they are far from the same thing. They both have utility, they both act as an investment vehicle and they’re both powered by blockchain technology.

Since the popularity of NFTs has grown, many people have been wondering how these two assets differ. In this guide, we’re going to discuss the primary differences between cryptocurrency and NFTs.

The similarities

Cryptocurrency and NFTs are not the same things, but many mainstream investors tend to bundle them into one category.

Both are indeed digital assets, with crypto coming first and NFTs starting to appear in the late 2010s. NFTs are usually purchased using crypto, which is why many crypto investors have also crossed over into the NFT marketplace.

Crypto and NFTs are built using the same underlying software and secured within digital wallets.  However, this is where the similarities between the two come to an end.

What you need to know about crypto

Cryptocurrencies are encrypted payment systems that are completely decentralized. They are free from the control of any government authority, and today there are more than 19,000 cryptocurrencies.

Physical money is based on confidence, such as confidence in banks, governments and the wider economy. Crypto’s value is based on verified proof of transactions within the database known as the blockchain.

Cryptocurrencies can be used as a medium of exchange, but most people consider crypto as an investment they can use to make money. Just like stocks, their value can go up and down. The difference is crypto is far more volatile.

What you need to know about NFTs

NFTs are another closely related digital asset. If you know where to buy NFT collections, you already know where to buy crypto. These digital tokens represent unique items. In other words, you and only you own the rights to the original.

These assets are created using sustainable blockchain technology, typically via the Ethereum platform. Unlike cryptocurrency, an NFT is a non-fungible asset. Each NFT is unique, and blockchain technology is used to validate the authenticity of each NFT. They’re worth whatever someone is willing to pay for them.

Collectors can spend millions on acquiring these assets. Like an antique, there’s no established market value until the time comes for someone to search for an NFT for sale.

The concept of fungibility is the primary difference that separates cryptocurrency and NFTs. A fungible token such as Bitcoin can be traded between two parties, and nobody loses any value from that trade.

The capacity to trade is what allows crypto to act as a mechanism for conducting transactions through the blockchain, including buying NFTs. Since NFTs are unique, they can never be the primary currency of the virtual economy.

Same but different

These two digital assets are built using the same technology, software and programming, but this is where the similarities end. Even though they both rely on the blockchain to authenticate them and verify ownership, you will usually need to purchase crypto to buy an NFT.

Cryptocurrencies are purely an economic tool. The value is the dollar value inherent within a particular currency. NFTs go beyond the economic and delve into non-economic terms.

Many collectors are not buying NFTs for their economic value but for the thrill of owning something truly original. Additionally, independent artists are creating their own NFTs so they can distribute and monetize their artwork.

Are NFTs here to stay?

Cryptocurrency tends to gain the lion’s share of the attention from mainstream audiences. What does that mean for the future of NFTs?

Anyone who remembers the history of Bitcoin knows that its popularity has ebbed and flowed. NFTs are following a similar pattern. They will go through waves of popularity. The fact is that NFTs are not a passing fad and are here to stay.

NFTs are not just pieces of artwork but have real utility within the growing metaverse. They denote ownership over something, which is where virtual real estate, artwork and fashion come into play.

It may take a few years for NFTs to reach the same level as cryptocurrency, but this is not a concept that is going to fade into the background.

Conclusion

Cryptocurrency and NFTs are closely interlinked because one must be used to purchase the other. These two concepts form the two pillars that enable the virtual world, known as the metaverse, to function.

Understanding the differences between the two can help you make intelligent investment decisions that benefit your portfolio.

Are you interested in owning cryptocurrency and NFTs?

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.