NFTs and Cryptocurrencies, What’s the Difference?

We all are witnessing how the world is shifting from traditional currencies to digital currencies. The same shift can be seen from digital currencies to cryptocurrencies. The valuation of cryptocurrencies has skyrocketed over the last decade. We also have seen the sudden surge of popularity of NFTs.
Owing to its increasing demand, people are willing to shell out hundreds of thousands of dollars for cryptocurrencies as well as NFTs. Though both cryptocurrencies and NFTs rely on blockchain technology and share similar characteristics, they are made for different purposes.

Before we dive into understand the difference between Cryptocurrencies and NFTs, let us first briefly understand these two terms separately:

What is Cryptocurrency?

Cryptocurrencies are digital currencies that run on blockchain technology and does not rely on banks to verify the transactions but uses peer-to-peer system to send and receive payments from anywhere in the world. The popular cryptocurrencies are Bitcoin, Ethereum, Cardano, Polkadot, etc. To know more on cryptocurrencies, you can read our earlier post – What is Cryptocurrency?

As mentioned in the previous post, Blockchain is a decentralized technology that manages, and records transactions spread across many computers. A significant feature of cryptocurrencies is decentralization, which is an important concept of Web3. We’ll see more of Web3 in upcoming posts.

What is NFT?

NFT is an acronym for non-fungible tokens. Non-fungible means one that is unique and cannot be substituted or modified with something else. NFTs are also based on blockchain technology that tracks the transactions to validate the authenticity and record the ownership. NFTs can be created, or “minted,” on the blockchain and can represent unique digital items like art, pieces of music, tweets, memes or video game items etc. These unique digital assets are tokenized which allows them to be
efficiently traded in different marketplaces. To know more on NFTs, you can read our earlier post – What is NFT and How Does NFT Work? 

Difference between an NFT and cryptocurrency?

If NFTs and cryptocurrencies both are built on the blockchain, then what makes them different from one another? The main difference is in the name itself. Cryptocurrency is a currency like every other currency, but the important point is that it is digital in nature, can be traded and is fungible. NFTs on the other hand are not fungible. A Bitcoin is the same as another Bitcoin, but an NFT is not the same as another NFT. Each NFT is unique and cannot be traded for each other as they are unique representations of real-world assets. NFTs can be considered a subcategory of the cryptos, and you need cryptos to purchase and sell NFTs. Most NFTs exist on Ethereum cryptocurrency’s blockchain that creates permanent digital ledger of all NFT transactions through Ether or ETH. Along with NFT projects, Ethereum blockchain is also the first choice of the decentralized finance (DeFi) market because of its highly-secure network and data architecture. We’ll see more of DeFi in upcoming posts.

The Bottom Line

Cryptocurrencies is changing the world of finance, but the question is will NFTs offer something similar to digital asset owners? Time will tell. From an investment perspective, traders have been drawn to the NFT market because of its creative, artistic component. On the other hand, crypto-currencies though being volatile has attracted many investors worldwide. We hope that you now have a better understanding of what cryptocurrencies and NFTs are, and the difference between them. Watch out this space for upcoming crypto current reports.