While the NFT may be limited in the value it can represent, it is highly flexible. They’re used within different industries and have a myriad of applications. For example, more people can now engage in Bitcoin trading through the platforms Bitcoin Circuit. With almost limitless potential, NFTs can shake up traditional markets with their decentralized ownership model. In the below-mentioned portion, we summarize everything you should know about NFTs and how they differ from cryptocurrencies.
Fungibility and non-fungibility
Just like paper money is fungible as it carries identical value and can be exchanged for another paper money of equal value. But non-fungibility makes unique assets – each asset has its own identity and can’t be replaced by any other asset. It means that any NFT has at least two distinct features:
Fungibility is an essential characteristic of money and other exchange media. It ensures that the pieces of money you own have the same value, even though previous owners may have used them for various purposes.
All fungible units are interchangeable, ensuring people can exchange all your 1 Dollar bills for any other 1 Dollar bill. Even if bills have previously been owned by someone else, as long as they haven’t been damaged or marked in some way, their value is still 1 Dollar.
On the other hand, any NFT can have unique characteristics and be uniquely identifiable.
In addition, they may have passed through multiple hands or been traded for many different types of assets, making them difficult to replace with another NFT.
The critical distinction here is that non-fungible assets cannot be replaced or altered from their current state. The NFT can be exchanged for different assets or used differently than intended when it was created. An NFT must be compatible with its original purpose and identifiable qualities. On the other hand, every token of a particular cryptocurrency, say, bitcoin, is identical and exchangeable with one another.
Use cases
Because they are a decentralized digital asset, many more applications can be applied by organizations to their use and application outside the cryptocurrency market. The primary use case for non-fungible tokens is collectibles such as Crypto Kitties. In addition, numerous projects are looking to utilize NFTs for various things, like real estate ownership, ticketing provisions, and loyalty reward tokens. However, the use case of cryptocurrencies is merely confined to the economic ecosystem and investment purposes.
Crypto Kitties A Prominent Example
They are digital assets that you can buy and sell using the Ethereum blockchain technology. In addition, the application allows you to collect and breed unique kittens using intelligent contracts which resemble ERC-721 tokens. These kitties are unique because every animal has different features, looks, and qualities.
Economic and Non-Economic Value
Cryptocurrencies are issued as tokens and can be used to exchange values in return for goods and services, while NFTs are created with non-monetary applications in mind. Therefore, their value is not necessarily associated with a general medium of exchange or store of value but with their usage to unlock and interact with specific features.
We already went over fungibility, but it essentially means that each token is identical and thus interchangeable, while each unit of an NFT is unique.
Non-fungible tokens are not interchangeable. Therefore each token created for a specific purpose is a non-fungible asset.
For example, let’s say you want to create the token, “Owners of McDonald’s will receive 10% off every order.
” But then you realize that maybe this is too specific and might not be as applicable to everyone. So at this point, you can create a new token that serves the same purpose but with more depth instead of just cutting out the promotion portion.
These tokens have become incredibly popular in the real estate market, where owners can sell part ownership in assets such as property or cars through digital designations. NFTs have a value tied to the marketplace in which they are bought and sold, but they may also hold value in other ways. For example, they may have a sentimental or cultural value that people in dollars cannot quantify.
For example, a baseball card from your favorite player or an action figure from your favorite game may not be worth much money.
Still, the memories and nostalgia it brings you will always make it valuable. So while an NFT will never be worth as much as a cryptocurrency, it can have a value associated with them that doesn’t necessarily have to involve financial transactions.
While there is some intrinsic value to cryptocurrencies (you can spend cryptocurrencies in exchange for goods and services), the primary value of these tokens comes from their ability to function as money.
