NFTs difference from Cryptocurrencies?
NFTs, non-fungible tokens, and cryptocurrencies have taken the global financial market by storm. They represent a real opportunity for companies and individuals looking to get into the industry. Innovative blockchain technology creates new business sectors such as digital art and metaverse.
However, there is a confusion of meaning between NFTs and cryptocurrencies. If not properly digested, confusion could lead to a major misunderstanding of the meaning of blockchain technology products. So, in this article, we will analyze the striking differences between NFTs and cryptocurrencies. But, first, let’s define what an NFT is.
What are NFTs in crypto?
NFT stands for “Non Fungible Token” basically, they are digital certificates of authenticity. It is, therefore, a unique asset that allows you to buy and sell ownership of digital items. These items can be anything digital, such as an image, a video, a drawing, a song, or, for example, a tweet. In addition, who owns them can be tracked using a public blockchain and Ethereum network standards.
For this reason, NFTs are related to cryptocurrencies, as the technology used by both is the same, the Blockchain. On the other hand, it is important to emphasize that they are non-fungible because NFTs cannot be modified or exchanged for another asset of equal value due to their unique and unrepeatable nature.
How do NFTs work?
This concept may not yet be clear, as it is somewhat complex. Therefore, to better understand how it works, it can be explained by means of a very simple example. An artist, such as an illustrator, creates an NFT image, i.e., a digital image for the price he considers. And people, if they are interested, buy it.
Here the question may arise: why pay for an image from the Internet that can be downloaded for free? This is the crux of the matter. If such an illustration is downloaded, it is true that the person also has in his possession the same image, but it is not the original. He will have a copy.
It is like having a forgery or a replica of the “Las Meninas” painting hanging on the wall at home. Do you have a painting by Velázquez? No. You have a copy of that work of art.
Therefore, NFTs are designed to offer something that cannot be copied, i.e., ownership of the work. Selling it, though, is also a way to try to make money. This is possible because the artist can schedule royalties to receive a percentage of sales each time a new owner acquires their art.
For how long does a non-fungible token retain its value?
Finding an answer to this question is sometimes complex because, with NFT explanations, several factors influence the price of an NFT. First of all, non-fungible tokens are identical to virtual currencies in this respect. Their value changes according to the state of the market. If there are more and more buyers, the value of an NFT will increase.
Indeed, the advantage is that non-fungible tokens are unique, which explains why their value can increase. However, the rarity of the asset is an important factor that plays on its value. Note that some NFT projects can also influence the value of non-fungible tokens. With these NFT explanations, it is necessary to remember that prior research on an NFT is the best solution before embarking on its investment. This could have as many risks as the management of cryptocurrencies.
Why invest in NFTs?
Whether it’s a long-term or short-term investment, remember that all reasons are good to invest in NFTs. For most investors, you need to buy a non-fungible token to hope that it will increase in value. This is a long-term investment for most. Finally, non-fungible tokens allow artists to sell their work without going through a middleman. Therefore, they will make more profit since art galleries and art institutions will not take commissions anymore.
How are NFTs and cryptocurrencies different?
NFTs and cryptocurrencies differ in several ways, both in terms of their fundamentals and the way they work. So let’s analyze these notable differences in this part.
Understanding NFTs: Differences in source code
The difference between traditional cryptocurrencies and NFTs is systematic. But, both of these digital assets use the Blockchain for different transactions. Cryptocurrencies are fungible, which means that the coins are interchangeable.
Moreover, the majority of NFTs are found on the Ethereum cryptocurrency blockchain. Indeed, the Ethereum blockchain, just like the Bitcoin blockchain, keeps digital records of every transaction made with this cryptocurrency. It also generates an immutable record of all NFT transactions.
Furthermore, within the Ethereum blockchain, the Smarts Contracts ERC-721, and ERC-1155 protocols are the only standards on which developers can design NFT cryptoArts. Therefore, this approach explicitly demonstrates how NFT tokens and traditional cryptocurrencies differ in their source code.
It is important to understand that both NFTs and cryptocurrencies are digital assets. However, the key difference you need to understand is that owning each of these things means very different things about blockchain technology. So owning an NFT is like owning a coin that is identical to itself with specific markings.
Understanding NFTs:
NFTs vs cryptocurrencies at the functional level
The functional difference between NFTs and traditional cryptocurrencies lies in the way they are used and their usefulness. Concretely, from a functional point of view, classic cryptocurrencies are used in the same way as classic currencies. They just serve as a means of transaction and trade.
However, their singular value with respect to the so-called classical currencies lies in the decentralization of finance. Moreover, it is the same standard regulator relationship that exists between cryptocurrencies and NFTs. We can say then that NFTs are cryptographic products that classic cryptocurrencies can buy.
On the other hand, NFTs are innovative products in a world that are increasingly connected to the network and the power of the Internet. Besides, that’s why when we talk about NFTs, we directly talk about Web 3.0, metaverse, virtual reality arts, and video games.
Cryptocurrencies’ role in NFTs
You have the possibility to buy non-fungible tokens via virtual currencies like Ethereum or Wax. Therefore, there are several platforms where you can make the purchase of your cryptocurrencies for the purpose of getting the NFTs. However, some platforms are recognized in digital art where users make transactions in dollars or euros. However, to secure the transactions, i.e., buying, selling, and trading, NFTs only work on the Ethereum blockchain.
Are Cryptocurrencies better than NFTs?
Cryptos, also known as cryptocurrencies, is a digital medium of exchange. Each currency operates through decentralized databases, the Blockchain, which guarantees being secure, integrated, and balanced. For their part, NFTs are virtual certificates of authenticity, which guarantee that the digital object purchased is genuine. “You get the titles as if it were a car: you put all the papers of the car in your name. This would be the same,” the specialist exemplified. It should be added that, through this system, you have the history of all the owners who previously acquired the asset.
Programmer Rodrigo Giménez exemplified that it is possible to acquire audio, videos, memes, artworks, digital albums, virtual collection figures, and game upgrades. However, to avoid confusion and scams, he recommended getting trained in the subject before acquiring some of these tokens, whether cryptocurrencies or NFTs.
On the other hand, Giménez predicted a future in which interactions will be through avatars and not physically. “I am not very much in agreement with respect to locking oneself in a virtual world and not going out on the street, but I think there are moral limits with respect to the power that one has and the level of addiction that can be generated towards another person. They are looking for the commercial side for what is going to hook a lot of people and, on the commercial side, congratulations for the company”, he closed.
Advantages and disadvantages of NFTs?
From what has been said earlier, it is clear that NFTs are beneficial to artists creating digital artworks. However, the strengths of NFTs do not negate the weaknesses they may contain. As a result, fungible tokens have both advantages and disadvantages.
Advantages of NFTs
Over the past few years, fungible tokens have grown tremendously in popularity. This is mainly due to the advantages of these tokens. Generally speaking, these benefits are as follows:
- non-fungible tokens increase the level of transparency between buyers and sellers of digital art;
- With NFT, fraud perpetrated by scammers is reduced, as they make authentication of digital assets possible; and
- The market for digital items is expanding because fungible tokens have created a climate of trust among digital art lovers;
- With NFTs, smart contracts can be established. In other words, the digital asset can store terms and conditions that will be executed in certain cases. For example, a token equipped with a smart contract can earn profits for its creator every time it is resold;
- Revenue streams are much higher for digital art creators;
- The non-fungible nature of tokens gives a unique look to all assets sold. Provided their links to blockchains, NFTs are immutable. This implies that they cannot be replaced, deleted, or changed.
Disadvantages of NFTs
Despite their many advantages, NFTs seem risky to some investors. To justify this, they point out the following disadvantages:
- The creation and sale of a non-fungible token is an action that is underpinned by a number of IT fees. In some cases, these costs exceed the value at which market users value the NFT;
- Given the static nature of NFTs, they cannot generate earnings of their own accord. Given the static nature of NFTs, they cannot generate earnings on their own. Therefore, their value is estimated based on subjective data such as market supply and demand. It can be concluded that a non-fungible token can gain or lose a lot of value at any given time;
- NFTs have a considerable impact on the environment since the Blockchain on which they are domiciled is energy-intensive;
- Despite the security of NFTs, there are some cases of theft. These do not depend directly on the tokens but rather on the platforms that exchange them.
Advantages and Disadvantages of Cryptocurrencies
Cryptocurrencies are unlike any other asset. They use new blockchain technology for humanity, which has made them a competitive alternative to bank transfers, electronic payment systems, and even public money. Yet, they also have their drawbacks.
Advantages
Some of the important benefits would include the following:
High profits when trading cryptocurrencies.
One of the main advantages is that in the short term, it offers high returns, especially when comparing these currencies with other financial products. Cryptocurrency prices can double from one day to the next. And even if they don’t, high volatility makes short to medium-term gains significant. Of course, you still have to take the risk of major and extreme movements.
High liquidity
Vital and important because you will always find a buyer or a seller with large trading volumes. In other words, a large amount of money is flowing in and out of cryptocurrencies.
Irreversible transactions
With these coins, no third party can reverse a movement in the market. Of course, some services may be responsible for protecting the investment and custody of cryptocurrencies. But no one can reverse a transaction that has already taken place.
A 24-hour investment
Compared to other markets or currencies (which close on holidays or weekends), cryptocurrencies can be traded 365 days a year, 24 hours a day. It’s a market that doesn’t stop for a second!
Disadvantages
While there are many advantages, the disadvantages are much less so as we have seen before. The most prominent ones are the ones we detail below:
Ban on trading cryptocurrencies in some countries
Some countries, like China, the Asian giant, have banned its use. In addition, other nations have denied promoting its use and mythologizing this type of investment.
More stress when investing in them
It is important to keep your emotions under control in this investment. The high volatility of these cryptocurrencies can cause stress for the investor, as the prices move differently than you might expect. Prices change quickly, so you should spend a lot of time analyzing the markets.
Possible vulnerabilities
Despite the great protection of these cryptocurrencies, they can all be vulnerable to quantum computing. In addition, it is important for you to keep in mind that, although there are not many advances of this type, we should anticipate that they can progress in the future.
