If you meet someone who is interested in non-fungible tokens, chances are they also trade cryptocurrency. Both crypto and NFTs are based on the same software and technology, both entered the public consciousness around the same time, and both represent a risky, exciting class of investments dominated by young buyers, sellers, and traders. Even if crypto is considered a token rather than a coin, non-fungible tokens are not a type of cryptocurrency. Despite their similarities, crypto and NFTs are worlds apart. Click here to learn the difference between crypto and NFT.
Although cryptocurrency and NFTs are not the same thing, mainstream investors could be forgiven for confusing the two.
Both are digital assets, and while crypto came first, the general public first heard about both in the late 2010s. According to Forbes, NFTs are frequently bought and sold with cryptocurrency, and both tend to attract the same players the NFT world has separated from crypto culture. Both are created with the same programming, encoded with the same underlying software, and stored in digital wallets but that’s where the similarities end.
Cryptocurrencies, such as Bitcoin, are decentralized and encrypted digital payment systems that are not issued by banks or backed by a centralized authority, such as the government. According to Forbes, there are over 19,000 of them.
Traditional currency’s value is based on trust — trust in the bank, trust in the government, and trust in FDIC insurance. The value of crypto comes from cryptographic proof of transactions that are verified and recorded on a special type of database known as a blockchain.
Some people use cryptocurrencies in the same way that they use dollars: as a medium of exchange for purchasing goods or receiving payment for a service or product. Most people, however, treat cryptocurrency as a commodity or security, similar to stocks.
NFTs are digital tokens that represent ownership of one-of-a-kind items such as images, music, or video clips. A digital image, like a Picasso, can be copied an infinite number of times; however, the value of both NFTs and oil paintings remains solely with the irreplaceable original.
NFTs are digital files that can represent ownership of anything — for example, Twitter founder Jack Dorsey sold an NFT of his first tweet for $2.9 million. They’re created with the same blockchain technology that made cryptocurrency famous. According to Forbes, they are typically held on the Ethereum platform, but they can also be found on other blockchains. Blockchain technology, like cryptocurrency, makes it impossible for more than one person to own an NFT at the same time.
Both cryptocurrency and NFTs rely on blockchain transactions to validate their authenticity and record ownership; in most cases, purchasing NFTs requires cryptocurrency. The main distinction is that cryptocurrency’s value is purely economic, derived from its utility as a currency or an investment. NFTs, on the other hand, have economic as well as non-economic value. Artists, for example, can use NFTs to distribute, monetize, and even autograph their work — work that a cryptocurrency investor or collector might then purchase.