The Difference Between NFTs and Cryptocurrency: Explained

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The world is increasingly shifting away from traditional methods of payment and toward digital wallets that can hold both cash and digital currency. With a myriad of options in the digital world, it is crucial to know the distinctions between different digital currencies and assets.

The debate between cryptocurrencies and NFTs is a prominent topic in the tech sector. Both NFTs and Crypto exist on Blockchain technology and follow such a concept. As a result, they tend to attract both entrepreneur and big companies. However, their identities and functions are fundamentally distinct.

This guide will walk you through the difference between NFT and cryptocurrency.

What are Cryptocurrencies?

Cryptocurrencies are virtual or digital currency that uses encryption to keep them secure. This implies they are incredibly safe to use and nearly hard to forge or double-spend.

Any cryptocurrency worth looking at will always have a variety of encryption algorithms and other cryptographic approaches. This system protects the networks from outside manipulation.

Curve encryption, hashing algorithms and public-private key pairs are examples of cryptographic methods used by cryptocurrencies.

Most cryptocurrencies are decentralized networks built on the blockchain technology, which functions as a public ledger with a distributed nature. It is maintained and enforced by a vast network of computers.

One of the distinguishing characteristics of a cryptocurrency is its decentralized structure. This structure renders it immune from government interference or manipulation.

Blockchain technology is at the heart of the functionality of several cryptocurrencies, including Bitcoin. As the name implies, this is a collection of linked “blocks” of data that form a “chain” over a massively interconnected ledger.

When the system creates a new block, each node in the network performs several checks. The transaction will then be confirmed and allowed.

Because the contents of the digital ledger must be “agreed upon” by the whole network, it is nearly hard to fake some changes to prior transactions on the network.

Pros of Cryptocurrencies

The popularity of cryptocurrencies indicates that these digital currencies have economic and financial advantages. There is also a reason why some entrepreneurs prefer to invest in virtual currency rather than real currency.

Cryptocurrencies may serve some practical purposes and provide only economic value in the digital realm, but they are much more. Here are other advantages of using cryptocurrencies.

Removes Intermediary Institutions

The decentralized nature of cryptocurrency is by far the most obvious benefit. When it comes to payment processing between the client and the supplier, this eliminates intermediary organizations like banks.

Because of the blockchain’s security, there is no need for a “middle man” to enforce, track, and police transactions like there are with traditional currencies.

It also implies that there is no one point of failure, such as a huge central bank, to protect against events such as the 2008 banking crisis.

Offers Relatively Fast and Cheap Transfers

Another significant advantage of cryptocurrencies is their capacity to facilitate quick and low-cost transfers between two parties. No intermediary is involved in the data processing. Users can complete transfers fast and efficiently.

A good illustration of this is something known as “flash loans.” In these loans, a user borrows money and reimburses the platform all at once without collateral. Cryptocurrency can complete this process in seconds. Trading also employs cryptocurrencies for faster transactions.

Presents Huge Growth Potential

Cryptocurrencies have tremendous potential in the remittance economy. “Currently, cryptocurrencies such as Bitcoin serve as intermediate currencies to streamline money transfers across borders,” according to Investopedia.

“A fiat currency is converted to Bitcoin (or another cryptocurrency), transferred across borders, and then converted to the destination fiat currency, resulting in a faster and cheaper money transfer.”

From an investor’s perspective, Cryptocurrencies provide an unparalleled chance to grow your investment in a brief time – albeit with significant dangers. Many of the more established and well-known cryptocurrencies, such as Bitcoin and Ethereum, have seen their value surge in the previous decade.

Bitcoin, for example, was worth $5.27 on an annual basis ten years ago. A single Bitcoin has a value of more than $40,000, more than a 7,000 percent increase in ten years! There are only a few types of investments with such high growth potential.

Cons of Cryptocurrencies

Along with the advantages of using cryptocurrencies, it also has disadvantages. Cryptocurrencies have several flaws and drawbacks. Investors call these cons as the next “bubble.” It is also essential to know and comprehend these roadblocks.

It Is A Volatile Trading Instrument

One of the disadvantages of cryptocurrencies is that it is one of the most volatile investments. Their worth might fluctuate significantly from minute to minute, hour to hour, and day to day. If an investor is unprepared or inexperienced, they risk losing a lot of money.

However, for some knowledgeable or experienced investors, the volatility of cryptocurrencies is part of their attractiveness. Daily swings of several percent, frequently repeated multiple times during the day, provide a tremendous chance for day traders to make regular buy-low-sell-high trades. However, this is quite risky.

It Creates Pseudo-Anonymous Transaction

Cryptocurrencies are not always a completely anonymous means of exchange. They are, in reality, what is more appropriately referred to as pseudo-anonymous. Transactions leave a digital trace on the blockchain. As a result, agencies like the Federal Bureau of Investigation (FBI) can decode this. 

This opens up the prospect that governments or public bodies may use the blockchain to track citizens’ financial transactions. However, this would necessitate the authorities to know your account address.

It Is Primarily Owned By Few People

A small number of people hold the most popular cryptocurrencies. This is in direct opposition to their image of decentralization. In theory, cryptocurrencies should allow for the distribution of coins among all participants on the blockchain.

Still, in practice, a small number of hands own these cryptocurrencies. According to a recent MIT research, only 11,000 investors hold 45 percent of all Bitcoins in circulation.

It Presents Environment Risks and Damage

Mining is likewise an energy-intensive activity. Bitcoin mining alone consumed over half of all the electricity consumed on the planet in 2021, a rate that has climbed tenfold in only the last five years. Most mining takes place in areas where fossil fuels generate electricity.

Because of the amount of energy needed, practically everything associated with blockchain is unsustainable from an environmental standpoint.

Any new record uploaded to the Ethereum network needs a considerable amount of computing, which uses energy. As a result, extensive trade in cryptocurrencies and other blockchain-based assets isn’t always good for the environment.

It Is Prone To Malicious Attacks

Another critical issue is that, while the blockchain itself is extremely safe, the digital wallets and exchanges commonly used to store and exchange them are not. In the past years, hackers have been able to hack popular wallets. These resulted in the theft of millions of dollars in

cryptocurrency.

As blockchain ecosystems evolve, new vulnerabilities have emerged. It features insecure endpoints which are vulnerable during cryptocurrency exchanges.

During trading, for example, a significant amount of bitcoin is deposited into a virtual savings account or a “hot wallet.” These wallets could be less secure than the blockchain blocks.

The blockchain includes third-party platforms. Smart contracts, payment processors, and payment platforms are some examples. These applications’ internal systems may have rather inadequate security. Financially motivated hackers use this vulnerability as an attack vector.

Non-Fungible Tokens (NFT) Explained 

NFTs, or Non-Fungible Tokens as they’re officially known, are cryptographic assets stored on a blockchain. If you are unfamiliar with the term, it comes from the Latin verb fungal, which means “to act.” It now usually means “interchangeable” in modern slang,

though mostly in legal jargon.

This digital asset has its unique identification code and metadata, distinguishing it from other NFTs. A non fungible token is also not mutually interchangeable. Thus ownership can be easily tracked and traced.

NFTs are unique digital assets that can only be traded, not replicated, and can be anything in the physical world – as long as it is a digitized version. NFTs can represent real world items. It can be anything from artwork, memes, video clips, trading cards, music, and in-game items.

The most important criterion is that they are unique. These digital assets that are “tokenized” make them more easily bought, sold, and exchanged while also lowering the risk of

fraud. 

Pros of NFTs 

NFT markets may offer a number of benefits. There are various reasons why not only artists and collectors, but also celebrities and entrepreneurs gravitate to them. Here are some advantages of non fungible tokens.

Inherent Market Efficiency as Investments

The most evident advantage of NFTs as investments is their inherent market efficiency. As discussed above, exchanging digital assets substantially simplifies the exchange process. NFT allows for removing some intermediaries, though NFT marketplaces now serve as the intermediate. The process is uncomplicated and seamless which is ideal for beginners.

However, decentralization is likely to become much more significant and risky in the future.

Ability to be Used for Identity Management

Another key advantage of these digital assets is their capacity to maintain identities. NFTs are like digital passports. However, it turns out that users can also utilize NFT as a physical passport too.

The NFT ecosystem allows users to convert individual passports into NFTs, each with its own set of features, perhaps simplifying the entry and leave process for diverse jurisdictions.

Capacity to Democratize Investing

Another significant advantage of NFTs is their potential to democratize investing. Larger assets, for example, can easily be divided into smaller digital “chunks.” It then allows more owners to participate rather than just a few high-net-worth individuals.

This could enable small, individual investors to own a piece of a masterwork in a high-value investment like artwork. Of course, they couldn’t hang it on their walls, but they might profit from the sale of the piece. These digital assets expand the number of investment options available to small investors.

NFTs will undoubtedly change the entire landscape in several industries, such as gaming. It has already made it possible to buy and sell various in-game assets.

NFTs might symbolize one-of-a-kind in game skins or in game objects that players could own and sell to other players or carry between games. This may even lead to a situation the NFT ecosystem treats players as investors. 

Cons of NFTs 

Alongside the benefits, there are also drawbacks in the NFT world. Many investors have reasonable cause to be hesitant about investing in these digital assets. Here are some disadvantages of NFTs.

It Lacks Exclusivity

One of the most significant disadvantages of NFTs is that anyone may create and “mint” a digital artwork. This means that someone might theoretically create an NFT for anything they do not have intellectual property rights to.

Furthermore, similar to cryptocurrencies, users can carry out the process anonymously. This makes it difficult for people to determine which ones are genuine.

NFT “factories” are already wreaking havoc by scouring the internet for anything that real world items could transform into an NFT. This compromises the creators’ intellectual property. It is complicated for IP owners to locate and remove these stolen works as they are already widespread.

Possibility to Lose Tokens

Another concern is that you may lose access to your own NFT. Non fungible tokens, which employ blockchain technology to operate similar to cryptocurrency, are considered safe. Because of the distributed nature of blockchains, blockchains make NFTs difficult but not impossible to hack.

Hackers robbed users of the popular marketplace OpenSea of an estimated $1.7 million in NFTs in February 2022. Attackers stole two hundred fifty-four tokens during the incident.  This includes tokens from Decentraland Marketplace and the Bored Ape Yacht Club.

The incident happened weeks after a hacker robbed another collector of $2.2 million in Bored Ape tokens. And because of the blockchain’s secure nature, recovering stolen products is extremely difficult.

 Also, if the NFT platform hosting your NFT goes out of business, you could lose access to your digital token.

Expensive Cost of Minting

Another issue with NFTs, at least for the time being, is the expense of minting. Fees for those seeking to join the bandwagon can be a little hazy and, frankly. It is also excessive for those new to the game. Minting your first and future NFTs varies, but the overall cost might be fairly high.

Setting up an account on sites like “OpenSeas” might cost as much as $300, and you’ll have to pay roughly 15% of the value of an NFT every time you sell an NFT. There are also additional hidden charges.

The majority of NFT marketplace where you’ll be selling and buying NFTs) accept cryptocurrencies as payment. This implies you’ll need some cryptocurrency and a digital wallet to store it. And, because the value of cryptocurrencies is so volatile, this could add to the danger of NFT investment.

What is the Main difference between NFTs and CRYPTOCURRENCIES? 

NFTs and cryptocurrencies are a lot alike in their characteristics. They are fundamentally separate species with common ancestry yet share many similar traits.

For both NFT and cryptocurrency, their common ancestry is blockchain technology. 

These digital assets and digital currencies have a lot in common. The significant difference is that cryptocurrencies are fungible by nature. Fungibility refers to the interchangeability of the pieces that make up a thing or commodity.

A Bitcoin has the same value as another Bitcoin, regardless of how users divide them. Cryptocurrency is fungible because any crypto token is worth its value and has nothing intrinsically more valuable than another.

NFTs are not fungible, as their name implies. But unlike cryptocurrency, NFT is not the same as other NFT. Each is a distinct, one-of-a-kind, and unique NFT valued differently based on perceived worth and demand.

is a digital asset that symbolizes a one-of-a-kind item, such as digital art, music, or in game items. The artwork exists only in the digital realm, yet it is unlike any other real world item in that it has real world value.

Cryptocurrencies have economic value, while NFTs have value beyond economics. Cryptocurrencies will undoubtedly revolutionize the financial world. On the other hand, NFTs are geared toward democratizing art for artists and digital entrepreneurs. 

The Bottom Line

NFTs are now a viable option for anyone with artistic interests who want to make money from their digital work. The market has attracted artists and traders because of its creative, artistic component.

On the other hand, Cryptocurrency is a little out of the ordinary. Some crypto platform builds cryptocurrencies that are more stable than others.

Stablecoins such as USD coin and Tether are far less volatile than digital currencies like Ethereum and Bitcoin. It is still the value of the US dollar that determines its value.

As a result, the debate between NFT and crypto is rather heated. However, the question should not be which digital currency or asset to invest in but rather whether or not each investor is willing to assume the risk that each entails.

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