Cryptocurrency vs NFT – Is Crypto Better Than NFT?
Little did the audience know that “monetised graphics” would be all the rage when they witnessed the first live demonstration of Non-Fungible Tokens (NFTs) in the New Museum of Contemporary Art in New York City. Something similar happened to eCash, the original digital money that failed in the 1990s. Today, both blockchain-based digital assets, cryptocurrencies and NFTs, worth billions are traded every day.
So, what is the difference between these two types of digital assets, given that both are based on the same blockchain and distributed ledger technology? How do they have completely different applications? What gives immense value to one, attracting the masses towards these nascent concepts?
Here’s the long-awaited face-off.
Crypto vs NFT – Comparison Table
|What is it?
|A digital representation of a coin that can work as a medium of exchange or a store of value or both.
|A unique digital asset non-interchangeable with any other asset.
|How is the worth evaluated?
|Market fluctuations, due to supply-demand ratios, regulations, accessibility and the underlying blockchain.
|Uniqueness, scarcity, consumer interest, utility, ownership history and accessibility.
|Where can you store it?
|Crypto wallets and blockchain applications.
|Crypto wallets and blockchain applications.
|Where can you use it?
|To make payments for goods and services, as loan collateral, and to buy NFTs.
|Build collections, collateral for loans, and ownership of digital avatars.
What are Cryptocurrencies?
Cryptocurrencies or cryptos are decentralised and encrypted virtual currencies. The purpose of designing cryptos was to eliminate counterfeiting and double spending. The foundation of most cryptocurrencies is blockchain – a distributed ledger enforced by a decentralised network of computers. A digital coin holds the same value as any other coin that is part of that currency, much like fiat currencies. They are stored, traded, and transferred electronically. The biggest advantage they have over their fiat counterparts is that they are easy and quick to transfer, hard to hack, and not managed by any central authority.
Did you know?
The crypto market was valued at $858.43 billion at the end of 2022.
One of the biggest wins of cryptos over fiat is their potential for multiple applications, such as:
Digitisation of Precious Metals – Asset Tokenisation
Asset-backed tokens have intrinsic value, making them “safe havens” in the crypto realm. The tokenisation of digital assets improves the liquidity of those physical assets in the real world. Tokenisation also facilitates trading with small amounts.
Pace Up Transactions
Pegging a cryptocurrency to a fiat currency makes the associated coin a stablecoin. These stablecoins are extremely useful for moving cryptos quickly between exchanges.
Crypto-Gaming and Governance – On-chain Governance
Cryptocurrencies and gaming are a winning combination, redefining the governing policies for online gaming platforms, private organisations, and clubs with the concept of decentralised autonomous organisations (DAOs).
What are NFTs?
An NFT is a unique digital file linked to a unique cryptographic token of a blockchain network. This process is called minting, which is a fancy word for creating. Fungible means changeable, so non-fungible emphasizes that each NFT is unique and cannot be altered in any way. These individual tokens have valuable information stored on them and hold value primarily due to market demand. Therefore, they are bought and sold like art, the segment that has adopted NFTs with open arms.
Did you know?
The global non-fungible token market size is expected to reach $211.72 billion by 2030, growing at a CAGR of 33.9% from 2022 to 2030.
Support Play-To-Earn Gaming Model
Digital collectibles are the most exploited use case of NFTs, as it enables non-duplicability and ownership traceability of in-game assets.
Facilitates True Ownership
The traceability endowed by blockchain has paved the way for curtailing digital art piracy. Blockchain prevents any tampering with a work of art and even ensures that royalties are received by the creators on each trade of their creation.
Membership Verification with Digital Tickets
With growing demand for virtual spaces like the metaverse, identity verification has become a challenge due to the high level of privacy and cryptographic coverage. NFTs, in the form of digital tickets, provide a means to verify participants for virtual events, such as concerts and webinars.
Differences between NFT and Crypto
Although both digital assets use blockchain, there are significant differences between NFTs and cryptocurrencies:
The value of a cryptocurrency token is purely economic, which means it works like a fiat currency, and each coin trades for the same value as another. Whereas an NFT, even if it belongs to a collection of similar NFTs, is valued based on consumer sentiment and is traded independently of others in its own ecosystem.
The purpose of cryptocurrencies is to establish a global decentralized digital financial system. NFTs, on the other hand, serve as a unique digital representation of what is considered valuable and needs ownership provenance.
Although both assets can be highly volatile, NFTs are relatively stable. The artistic aspect and consumer affinity lend more value to each NFT, while cryptocurrency tokens get their value from the markets and the technology or business backing them. This is like how stocks are valued.
Cryptocurrencies are used in the digital world like fiat currencies in the financial markets. They are used to buy and sell assets. Some nations accept them as true or physical currency against goods and services as well. NFTs have numerous uses, such as domain names, collaterals, smart contracts, digital identities, medical records, digitised certificates, and much more.
Cryptocurrencies can be bought from exchanges and brokers such as Binance, Coinbase, Kraken and eToro. They can be exchanged for fiat currencies and other cryptocurrencies. NFTs are sold at designated digital galleries, called marketplaces. Owners exhibit their NFTs, and an enthusiast may purchase them at the best available price. Some of the most popular NFT marketplaces are Opensea, Rarible and Foundation.
Similarities between Cryptos and NFTs
Although two very different types of digital assets, Cryptos and NFTs do share similarities due to the technology they are based on:
- The foremost common element is that both function on blockchain-based digital encrypted ledger technology.
- An immutable and transparently accessible record of all transactions of each asset is maintained on the blockchain.
- Neither a particular token nor a coin can be simultaneously owned by two people.
- Both are stored in cryptographically secured Web-3 wallets identified by unique addresses and owned by individuals who hold their key.
How Do NFTs and Cryptos Work Together?
Often cryptos are bought in exchange for fiat according to their value in the market. While NFTs are bought using a cryptocurrency that owner wants, some marketplaces allow NFTs to be bought with fiat currencies as well.
When an NFT is bought using a cryptocurrency, if the value of the crypto rises, the value of the NFT tends to appreciate and vice versa. However, it is not necessarily certain that if an NFT is highly valued, the currency used to purchase it will also gain valuation. For instance, you might buy gold with a certain amount of USD. When the value of USD increases so does the value of the gold you purchased. However, if it were a painting, and its value increases because the painter became a celebrity, the value of the USD will remain unaffected.
In short, cryptos are a means to purchase NFTs.
Who Invests in NFTs and Crypto?
Someone who invests in NFTs might be dabbling in cryptocurrencies too. Many people who invest in cryptos do so because they are often viewed as safe havens during economic turmoil. Not that they are risk-free, but the value of cryptocurrencies accelerates much faster than that of fiat currencies. On the other hand, NFT-buyers are more leisure-driven. They are either fans of the art or the creator. Individuals who are enthusiastic about a particular type of art or an art piece, or music may purchase an NFT. Gamers and metaverse enthusiasts spend thousands of dollars to own one-of-a-kind digital assets. However, with smart contracts and digital tickets, NFTs have further compelling potential uses. Of course, influencer hype surrounding both NFTs and cryptos cannot be underestimated, especially with trending hashtags and memes sent viral by influencers like Elon Musk.
Cryptos vs NFT’s Pros and Cons
|Pros: Cryptocurrency is an accessible way to make speedy and secure cross-border transactions. They serve as the basis of the future of economy – tokenised, transparent, and decentralised.
|Pros: They have many use cases across a range of industries and serve as collectibles as well. They can be authenticated, and ownership can be traced back to origin any time required.
|Cons: They are highly volatile and complicated for beginners as they are completely digital. Uninformed novice traders are susceptible to scams. The only way to “keep” them is to ensure the security of the wallet. Once, the wallet is lost, there is no mechanism to recover lost asset.
|Cons: Mining an NFT is costly and there is no guarantee that a mined NFT will sell for profits. In-fact there is no guarantee that a highly valued NFT will retain its value later as the NFT market is saturated. Some kinds of NFTs do not even have a true use case.
- Are Cryptos better than NFTs?NFTs are unique and not plagued by double-spending and mass crypto exchange hacks. However, their value is subjective. Cryptos, on the other hand, are a store of value but require considerable due diligence. The key difference between the two is fungibility.
- What is the relationship between NFTs and cryptocurrencies?Although initially, the NFT market was small and depended on cryptocurrencies for trade, it has rapidly matured and NFTs are breaking away into their own universe of unique identification and provenance valued independently.
- Are NFTs considered crypto?No, an NFT is not crypto, it is a digital asset that is valued in cryptocurrencies. Cryptos are the ‘money’ for the digital financial ecosystem.
- Do NFTs affect cryptocurrencies?NFTs do not affect cryptocurrencies. The volatility slipover between the two markets is insignificant to meaningfully conclude any valuation effects.
- How do you make money with NFTs and cryptos?The basic logic of attempting to make money from either digital asset is the same – buy low, sell high. However, it is important to understand the underlying blockchain technology and how it supports decentralised finance. In the case of NFTs, investors need to consider the use case and its potential to become indispensable in the future. This requires evaluating its uniqueness, scarcity, and existing or potential demand.