To someone unfamiliar with crypto, concepts like NFTs, Web3, Ethereum, or Bitcoin may seem a bit opaque and obtuse. And it’s understandable. After all, crypto and the technology behind it are not the easiest to understand. But neither is the hardest. If you take your research seriously, you’d be surprised how approachable these things are.
Nonetheless, you might have often heard about NFTs and cryptocurrencies as being one and the same or totally different. The truth is that they’re somewhat interconnected but not necessarily dependent on each other. And while you may be wondering which is best to invest in, learn that you can trade cryptocurrency and dab NFTs at the same time. Contrary to what some believe, electronic currencies and NFTs denote alternative classes of investments.
One thing is for sure – cryptocurrencies and NFTs have a strange relationship that needs to be explained. That’s why we’ve come to your aid! Find here what each digital asset represents, their main similarities/differences, and how they interact.
What are cryptocurrencies?
Cryptocurrencies are virtual currencies or digital tokens secured via cryptography, which protects them from cyber threats and makes them hard to counterfeit or double-spend. This security is due to several procedures, including public-private key pairs and encryption algorithms, but we don’t have to go that far. What’s essential here is for you to understand that cryptocurrencies have practically the value of real money, which is why they’re often called electronic coins.
Bitcoin and Ethereum are the largest and most popular digital currencies, but each operates within a separate blockchain system – a distributed ledger enforced by a divergent computer network. You can purchase and sell virtual coins such as Ethereum on decentralized exchanges, preferably Binance, as it’s reputable and trustworthy, or opt for a broker.
But you must also set up a digital wallet to store your cryptocurrencies. These wallets are of two types: hot and cold, and their level of security gives the difference between them. Hot wallets function in an online environment, meaning that they use the Internet, whereas cold wallets are hardware wallets that provide state-of-the-art security for crypto assets. When choosing your exchange or broker and the digital wallet, consider your particular needs and expectations regarding this investment – is it going to be long or short-term?
Now you can buy various things with cryptocurrencies, including NFTs, which we’ll move into next.
What are NFTs?
NFTs or non-fungible tokens are digital assets, just like cryptocurrencies, but the main difference between them is that they’re not fungible, meaning they’re unique and singular cryptographic assets. Individuals purchase NFTs precisely for their singularity, as they stand for special items such as music, images, and video clips. Unique works of art took the form of NFTs and are valued individually, unlike cryptocurrencies, and this proves that the value of such objects stays in the irreversible original.
However, NFTs are not only about oil paintings, music, and video games – they can come in any form. Twitter founder Jack Dorsey, for instance, made an NFT out of his first tweet and guess what? He sold it for approximately $2.9 million. Who would pay that much for basically a digital image? You’d be surprised. Many enthusiasts hunt for everything authentic and original, from an autographed first-edition book to a collector’s item (stamp, baseball card, perfume, etc.).
NFTs are generally held on the Ethereum platform, but other blockchains have such digital tokens, too.
What can NFTs do?
The significance of NFTs isn’t just about the true ownership of a singular object; it’s much more than that. With the help of these non-interchangeable tokens, creators of all kinds can sell directly to fans and supporters without the intervention of a middleman. That way, artists earn royalties, and fans own singular items of their art. Even celebrities like Paris Hilton and Snoop Dogg publish NFTs based on their experiences, acknowledging their true value to the fandom.
Are NFTs unique in connection with digital currencies?
We’ve already established that NFTs are singular assets that can’t be interchangeable, but what’s their status in relation to cryptocurrencies? Well, they’re just the same. You can purchase NFTs with virtual coins, but there are other forms of money you can use to buy NFTs. These non-fungible tokens once depended on the crypto market, but now this is no longer available, as the industry has significantly evolved and can choose for itself.
Unlike cryptocurrencies, NFTs don’t have only economic value. Their unique character transcends economics and goes directly to the soul of anyone interested in dabbing in them. Collectors can spend millions on a particular NFT that means something to them and then keep it without worrying about money or profits. When it comes to cryptocurrencies, people buy and sell them using various strategies for rewards. It’s all in the rewards. Whether you choose day trading or long-term investment, you’ll sell those coins at some point.
Creators can use NFTs to monetize, share, or autograph their pieces of work, making them unique in the eyes of investors and creators. On the other side of the coin, cryptocurrencies are not unique and have just the same economic value.
What brings them in the same boat?
The main similarity between cryptocurrencies and NFTs is that they rely on the same technology and principles. Besides, they’re both digital assets running on blockchain and secured by similar algorithms. As previously mentioned, when you buy cryptocurrencies, you have to store them in a digital wallet, and well, you need a place to store NFTs, too. These similarities tend to lure the same players, so we have no doubt you sometimes hear about these concepts in the same discussion.
Nevertheless, there are more differences than similarities, and this should be clearly pointed out. Although NFTs are tightly connected with the blockchain and crypto, they don’t have the same function or purpose and don’t always address the same people.
The line between NFTs and cryptocurrencies is thin, but if you have enough patience to understand it, you can make wonders with both digital coins and non-fungible tokens.