For any financial transaction, money is a prerequisite, and its value is accepted worldwide. Today, fiat money, a government-issued legal tender, is in circulation. However, over the last decade, blockchain technology and crypto assets have been included in the world’s money and value system.
NFTs or non-fungible tokens are the ones based on blockchain technology and differ from other crypto assets in many ways. It is pertinent to note that each NFT is unique in terms of its size, scarcity, creation, and so on. Hence, it cannot be used in place of another asset.
So, What are NFTs?
NFTs or Non-Fungible Tokens stand for the unique entities which can neither be replaced nor interchanged; they are digital assets representing real-world objects such as artwork, games, music, and videos. They have been around since 2014 and are becoming popular in buying and selling digital artwork, due to which a whopping $174 million (INR 132 Billion) have been invested in NFTs.
NFTs are now gaining popularity due to several factors, such as the normalisation of crypto assets and blockchain frameworks, for example. Here then are some cases where NFTs are used:
Digital Platforms: NFTs are most significantly used in digital platforms. They are helpful to enhance the profits that content creators make. They empower the creator economy where creators own and publicise their content.
Games: NFTs have invoked interest in the game developers. In an online game, you can buy items for the character.
Collaterals: NFT and DeFi (or the Decentralised Finance) have the same infrastructure by which you can borrow money using collateral.
NFTs have proven to be profitable in the art world and are especially beneficial for the artists making a living from NFTs. With NFTs, they can authenticate their work and bring in the dynamics of demand and supply. A low unique item supply increases the demand, and its owner can set a high price and clock sales.
What is a Fiat Currency?
“Fiat” stands for “an authoritative order” made by the government, thereby becoming a legal tender. Currently, there are 180 fiat currencies available in the world.
Modern currencies, such as US dollars, Euros and Pounds, are some examples of fiat money. Fiat currency derives its value from the marketplace supply and demand.
Fiat money is not a fixed resource, and the country’s central bank can control its supply and value. This implies that the governments can reliably manage the credit supply, interest rate and liquidity.
The value of fiat assets is based on the supply and demand and the issuing government’s stability. The fiat money value depends on the collective agreement, and its acceptance will retain its value in the future. Using Fiat money, the central banks can control their economy.
How is Fiat Currency Different from Cryptocurrency?
Fiat money is standardised by central authorities or governments It is less volatile than cryptocurrency, and its volatility is mainly due to the presumed nature of trade, where investors can focus on creating wealth.
Like cryptoassets, NFT fiat currencies are also based on blockchain technology, with each NFT asset being unique. Before investing in NFTs, it is essential to understand the concept of fungibility. The blockchain is also a digital ledger (DLT), as every transaction sent through a blockchain gets recorded on an unmovable ledger. This implies that the information stored in the blockchain cannot be altered, deleted or modified, making the blockchain ideal for financial transactions and storing fixed asset details such as physical property like land and buildings.
NFTs and Blockchain
Non-fungible tokens are backed by blockchain technology and driven by cryptoassets. The tokenisation done is used to sell digital assets, such as artwork, games, stills or videos, which may range in a variety of applications and may evolve more.
Due to the features, they offer to the users, NFTs are applicable in other industries. For example, educational institutions will provide graduates with NFTs, highlighting their attendance records and performance.
Digital currencies or cryptocurrencies such as Ethereum and Cardano have unique characteristics, and each of the functions in a specific form of a blockchain.
Outlined below are key points relating to NFT and Fiat money:
- NFTs or non-fungible tokens are the artworks sold on digital platforms backed by blockchain technology.
- Fiat currency is the money made by the legal government tender.
- Fiat currency is less volatile than cryptocurrency.
- NFT fiat currencies offer blockchain security without using crypto tokens and are different from cryptocurrency in several ways.