Virtual assets are fast becoming as popular as physical assets. Currently, there are two major types of virtual assets, which are cryptocurrency and non-fungible tokens (NFTs). Although both of these assets have their unique advantages and disadvantages, we can say that they are connected in some way. So, what’s the connection between NFT and cryptocurrency? Let’s take an in-depth look.
What are cryptocurrencies?
Cryptocurrencies are simply virtual or digital currencies that employ encryption to avoid counterfeiting or double-spending. Many cryptocurrency-decentralized networks are established under blockchain technology, which is a widely distributed ledger implemented by a wide network of computers.
Cryptocurrencies are generally immune to government manipulation or intervention because they are not issued by a central authority.
What are NFTs?
NFT is short for non-fungible tokens. Hence, unlike traditional cryptocurrencies like Ethereum, NFTs cannot be traded for one another. This is because each NFT is distinct and all have diverse values. Generally, NFTs are used to portray virtual objects such as art, music, as well as other virtual assets. NFTs are rapidly growing in popularity due to how easy they are to buy, sell, and trade on different decentralized platforms.
What is the difference between NFT and cryptocurrency?
Here, we’ve compiled a list of the differences between NFT and cryptocurrency based on various factors. They include:
1. Trading
One major difference between cryptocurrencies and NFTs trading is that the latter consists of unique and non-fungible virtual assets. Essentially, this means that each NFT out there is unique and it is impossible to replace it with another NFT. Cryptocurrencies, on the other hand, are fungible virtual assets, which means each cryptocurrency we have can be replaced by any other cryptocurrency that has the same value.
When trading NFTs, the asset itself is traded, however, when trading cryptocurrencies, the underlying value of the asset is traded.
2. Volatility
While comparing cryptos to NFTs, cryptos are usually notable for their volatile nature. Although some people see their volatility as a very positive point, other people may see it negatively. On the other hand, NFTs are far more likely to be stable since they are not liable to the same market forces that affect cryptocurrencies. Rather, NFTs are generally valued based on their merits. This means that their costs are not as liable to the volatility of the general market.
3. Purpose
The main purpose of NFTs is to verify proof of ownership for a specific digital asset. NFTs can be used to depict different items, including videos, audio files, photos, as well as other forms of virtual content. Also, NFTs can portray physical objects, such as collectables, works of art, and real estate.
Generally, all NFTs are unique and replicating them is impossible, which makes them perfect for establishing authenticity and ownership. NFTs are usually saved on a blockchain, a dispersed database that is very secure and safe from external forces.
Like normal currencies, cryptocurrencies serve as a means of trade that was created to swap digital information and solve recurring issues with existing currencies. Basically, it allows the buying and payment of different products and services. It also guarantees safe, fast, and decentralized transactions.
4. Uses and marketplaces
Another major difference between NFT and crypto is that NFTs have generally been used for a wide range of different purposes, including gaming, digital art, as well as collectables. On the other hand, cryptocurrencies are mainly used for investment or payments.
NFTs can be often purchased and traded on specialized marketplaces, whereas cryptocurrencies can be purchased and traded on different exchanges.
Check this out – How to easily create a Bitmama Fiat Wallet
How are NFTs unique in relation to cryptocurrencies?
NFTs are considered unique because they are generally not divisible. Basically, this means that they cannot be divided or split up into smaller units. On the other hand, cryptocurrencies are divisible and can be split into smaller units.
This makes NFTs practically like physical assets, such as real estate or arts, that can only be split into whole units. While comparing the difference between blockchain vs NFTs, it is easy to tell that the main difference between them is that NFTs can store information about themselves within the blockchain and this allows for increased security and complete transparency.
On the other hand, cryptocurrencies are divisible and may be stored on different kinds of platforms.
Considering portability, cryptocurrencies are considered far more convenient than NFTs. Also, cryptocurrencies can easily be used to buy goods and services, however, NFTs cannot be used. Lastly, the supply of NFTs is finite, however, cryptocurrency supply is not finite.
What’s the connection between NFT and cryptocurrency?
This brings us to the question “What’s the connection between NFT and cryptocurrency and how do they work together”? Both NFTs and cryptocurrency are going to be a part of the planned Web3 and are also a huge aspect of the metaverse. However, users cannot trade one NFT for another, unlike how it is easy to trade cryptocurrencies. Nevertheless, users who choose to engage with either of them might decide to also use the other.
To buy non-fungible tokens, a user has to own a crypto wallet which is generally used for purchasing cryptocurrency. This wallet is also where different platforms store their NFT keys, which serve as proof of ownership of a specific NFT collection. Users have to keep their crypto wallets secure and private, just like a physical wallet.
While so many NFTs are just for sale with cryptos only, there are frequently different options for people who want to buy with conventional currency or credit cards.
What are the pros and cons of NFTs?
Here is a list of the possible benefits of NFTs:
1. The ability to produce unique, special digital assets
Unlike conventional digital assets, such as MP3s or JPEGs, it is possible to use NFTs to create unique, one-of-a-kind, special assets. This means that NFTs are likely to be far more valuable than conventional digital assets.
2. The capacity to track provenance and ownership
One of the major and most important benefits of NFTs is the capacity to trace provenance and ownership. This can be done because each NFT is held on a blockchain and the blockchain is a public ledger. Anybody can see who possesses a particular NFT and from where the token came. This complete transparency can help to decrease fraud and boost absolute trust in the NFT market.
3. The capacity to buy, sell, and even trade NFTs very easily
Another major advantage of NFTs is that people can easily buy, sell, and trade because there are numerous marketplaces devoted to their exchange, such as Rarible and Open Sea. These are called NFT crypto platforms. They make it very easy for you to buy, sell, and even trade NFTs without passing through any central authority.
Exciting Read – What are centralized and decentralized cryptocurrencies?
Cons of NFTs
Some numerous potential drawbacks connected with NFTs include
1. NFTs may be used for money laundering purposes or to engage in any other illicit activities. For instance, they may be used to purchase illegal goods and services anonymously.
2. NFTs can be used to evade sanctions or any other trade restrictions. Another alarming concern is that they may be used to sponsor terrorist activities. For instance, NFTs may be used to contribute to any terrorist organization anonymously.
3. NFTs could easily be used to promote child pornography or any other kind of child exploitation. For instance, they could be used to purchase child pornography anonymously or even to request child and underage sexual abuse material.
4. NFTs can be used to easily purchase weapons or any other potentially harmful materials that can be used during a terrorist attack.
Ultimately, what’s the connection between NFT and cryptocurrency and which is better? It’s simply that they are both going to be used for the proposed Web3 and Metaverse. As for which virtual asset is better, the answer majorly depends on what you are searching for.
If you are seeking to invest or trade and need something that cannot be replicated, cryptocurrency is perfect for you. Ensure you read through the pros and cons of NFTs and weigh them before making a final decision.
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