In recent years, the financial and art worlds have been flooded with talk about NFTs and crypto tokens. When single NFTs can sell for almost $70 million, their influence is undeniable. Many artists and investors are jumping at the opportunity to own and trade such NFTs. However, these concepts can seem daunting for those unfamiliar with the industry. So how are NFTs and crypto coins different?
What is Blockchain?
To understand crypto tokens and NFTs, it is first necessary to know about the technology that powers them.
Blockchain is a system of storing and sharing data. It is a public, decentralised ledger of activity that allows for both transparency and anonymity in transactions. Sets of transactions are combined together to form “blocks”. Each block is encrypted based on the one that came before it, like a chain.
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Blockchains do not exist in a single physical location. A single blockchain can run on millions of computers around the world. This makes them highly secure and accessible to a wide range of users. Blockchains also enable users to be completely anonymous, as you do not need to give out your personal information to use one.
What Is Crypto?
Crypto tokens are a form of digital money. These digital assets are protected by cryptography and are almost impossible to counterfeit or double-spend. They are powered by blockchain technology, which is used to verify transactions made in crypto tokens.
Unlike fiat money, there is usually no centralised authority in control of crypto tokens. New tokens are created through a process called mining or staking, which is regulated through code. There is also no third party like a bank to verify transactions as the blockchain is itself a tool for validation.
The two most popular crypto tokens today are Bitcoin and Ethereum, each of which serves a different purpose. Bitcoins are mainly used for transactions, while Ethereum allows for new functionality like smart contracts and decentralised applications.
What Are NFTs?
Non Fungible Tokens are digital assets that can take various forms like pictures, music, videos and even documents. They serve as certificates of ownership and prove the asset is unique on the blockchain. Since the NFT is a token, its ownership can be tracked and transferred from one person to another.
Currently, NFTs are mostly used as collectables. Some artists may turn their art into NFTs, which helps ensure it is not stolen by others. Other creators also make entire collections of NFTs. You may have heard of Bored Ape Yacht Club, which is one of the most expensive collections right now.
Difference Between NFT and Crypto
The key difference between NFTs and crypto is that NFTs are “non-fungible” while crypto is fungible. For example, if you exchange one Rs. 10 note for another, its value does not change since they are identical – or fungible. But exchanging one painting for other is not the same as there is value in the authenticity of a painting.
Crypto tokens can be divided into many smaller parts. For example, a Bitcoin can be divided up to 8 decimal places. A “Satoshi” is the smallest division of a bitcoin. This ensures ease of transactions as you are not limited to paying in whole tokens.
On the other hand, NFTs are not divisible. Each NFT is a distinct token on a blockchain that tracks the authenticity and ownership of the asset. If they are divided, they will be unable to validate ownership on a blockchain.
Crypto tokens are used for payments, money transfers and anonymous spending. Their global reach and fast transaction speeds make them ideal for international transactions.
NFTs are used for digital items, cosmetics and even virtual real estate. If any item can be converted into a digital version, it can be secured through the use of NFTs
Cost of Investment
Crypto tokens are easy to invest in. There are many different crypto exchanges, both centralised and decentralised, on which you can trade tokens. Since they are divisible, investing in them also does not need to be expensive. You can invest as little as Rs. 100 in crypto.
Unlike crypto, purchasing NFTs can be very expensive. Since each piece is unique and distinct, it cannot be freely traded. Plus, prices can regularly cross tens of thousands of dollars. If the NFT is on the Ethereum blockchain, then even the gas fees can be an expensive deterrent for a lot of users.
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Is NFT the same as crypto? While they may function on the same blockchain technology, crypto tokens and NFTs are different concepts. One is used for payments while the other is used to secure and trace digital assets anywhere on the blockchain. These two innovations have taken the world by storm and are sure to leave a lasting impact on finance and art.
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