NFT vs Cryptocurrency – What is the difference between them?
The world is gradually shifting from the traditional transaction and investment ways to the digitalized ones, leading to the acceleration of Financial Technology (Fintech) trends. Global FinTech not only allows institutions to provide better financial services but also enables easier access for users to manage and invest their assets under the network. These years, NFTs and cryptocurrencies have been under the spotlight, seeing them as a promising investment, and a trading way that helps enhance efficiency and productivity. People who are not familiar with FinTech investment might associate NFTs with cryptocurrencies, thinking they are the same thing. In fact, there are a few key differences between the two investments. Let’s see the NFT vs cryptocurrency comparisons below.
The basic concept of NFT and Cryptocurrency
Before jumping into the differences between NFTs and cryptocurrencies, let us briefly explain the basic concept of NFT and cryptocurrency.
Cryptocurrency is basically a decentralized digital asset that can be used for exchanging under a technology called “blockchain”. In the past decade, cryptocurrency investment has risen, investment of Bitcoin, Ethereum, Dogecoin, and Shiba Inu coin has become popular among investors. Also, it has been reckoned as one ofo the alternatives to other traditional investments, namely stocks and real estate.
NFT is a unit of data that can represent almost everything, the popular NFT includes artworks, collectibles, in-game items, or even legal documents. NFT’s applications are unlimited, and that is one of the reasons why it is popular because of its item variations.
See More: Your only guide to NFT: What is Non-fungible Token (NFT) and how does it work
NFT vs Cryptocurrency – Fungibility
The main difference between NFT and cryptocurrency is fungibility. Cryptocurrency is a fungible asset. Since the fungible objects are identical, they can be traded with an identical item with the same value. For example, 1 BTC can be exchanged with another BTC, or fiats and other cryptocurrencies with an equivalent value. Therefore, it is convenient for exchanging and trading for other assets. The fungibility is all due to the identical nature of cryptocurrency.
In contrast, every NFT is unique as it is a non-fungible token. Unlike cryptocurrencies, they cannot be exchanged with another NFT even two of them have a similar or equivalent value. Thus, NFT is irreplaceable due to its non-fungibility. In other words, if an NFT is lent to someone, the person has to return the exact same piece of NFT and cannot return another one with a similar value. This feature somehow makes it harder to trade compared to cryptocurrency, since its transaction is limited under boundaries and can only be traded and a particular trading environment.
Investors can buy cryptocurrencies and exchange for other assets later with either a higher price or lower price according to the exchange rate on the cryptocurrency trading platforms like Binance and Gemini. Many investors make profits through the rate differences. However, for NFT, it is not interchangeable. Investors can only buy or sell it on NFT markets.
Ease of creation
Another difference in the NFT vs cryptocurrency comparison is the ease of creation. For NFT, it has an easier way for users to create their own NFT, which is called “minting”. Every user can make use of NFT marketplaces like OpenSea, then create your account and connect it to an Ethereum based wallet. Finally, upload all the documents required, and the minting process will be started. Most of the NFT marketplaces provide free minting options, where users can turn basically everything to NFT with zero cost!
Yet, it is not as easy as creating your cryptocurrency, compared to NFT. You have to create a new blockchain, fork an existing blockchain, and so on. The whole process requires so much expertise and professional background to do so, so it is not a thing everyone would like to do. Also, it is as well hard to compete with other trending big cryptos after your creation, and your crypto may just sink after all the hard work of creating.
Differences in value determination
Since every NFT is unique, part of the factors determining the value of NFT is the rarity. If the NFT is scarce, for example, the very first piece of artwork from well-known artists in the digital arts industry, or NFTs minted by people with big names, the value of NFT will drive high. However, cryptocurrencies, such as Bitcoin, prices are influenced by the production cost during the mining process, and also the number of competing coins in the market. Given that NFTs do not have direct comparisons with each other, this factor does not apply to NFT’s value determination.
After all, investors have to bear the risk of losing over both NFT and crypto investments. Certain NFTs prices might also be volatile like crypto, it is always worth taking a step back in the middle of the investments.
Every investment contains a certain level of risk. You should always evaluate the associated risk level before investing in any of the investment options!
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