What is the difference between cryptocurrency and NFTs?
Cryptocurrency is different from digital currency in that it’s issued privately, not by a government. The fact that it’s a non-physical currency is what they have in common. Cryptocurrencies run on blockchains, the most common ones being Ethereum Mainnet and Binance Smart Chain. They are not regulated by government or other authorities.
NFTs are also digital assets, but they represent real world assets like artworks, music, fashion, and more. They can be used to monetize any work, from collectible sports cards to memes. Here is some more information about these assets and their differences.
Blockchains collect and store data on all transactions in a public ledger, which anyone can access. They are decentralised and independent of regulation, although governments around the world are slowly changing that. The idea is that there’s no need for a central authority because anyone can see the transactions in the decentralised ledger. Strong encryption protects cryptocurrencies, unlike digital currencies.
NFTs are not interchangeable, hence the term ‘non-fungible’. Cryptocurrencies are fungible, which means they can be exchanged at 1:1 value. One BTC can be exchanged for another Bitcoin or the equivalent in another crypto or fiat money according to the respective exchange rate. NFTs are similar to crypto in that a digital ledger manages them and all transactions are done online.
Finally, digital currency is electronic money that’s analogical to fiat money. Although it doesn’t exist physically, you can buy products and conduct transactions using it. Users need unique and secure passwords to protect their digital wallets from hacking or theft as digital currency is not encrypted.
The main difference between these three assets is that NFTs are unique representations of real world assets and can’t be traded like cryptocurrency and digital currency. Digital currencies are centrally regulated by governments and banks, which keep track of the transactions done using them. NFTs and cryptocurrency are decentralized. Their communities regulate them.
Digital currencies are private, while cryptocurrency and NFTs are accessible through a digital public ledger. Any movement can therefore be seen.
Crypto and NFTs are developed using blockchain technology. NFTs are different in that they have a digital signature. Encoding makes exact replication impossible. Every NFT is different. They can’t be traded or exchanged for one another without loss of value.
Digital currencies are not transparent like crypto and NFTs. You can’t just choose the address of a wallet and view transactions there. This information is private. NFTs and cryptocurrencies enjoy full transparent. As all transfers and transactions are in a public network, any user can see the transactions of another user.
In essence, central bank-issued digital currency is electronic cash. Digital currency is like cryptocurrency in that it is based on data and doesn’t exist physically. CBDCs (central bank digital currency) are backed by governments. They are not only recognized, but also accepted as fiat equivalents that people can use to buy goods and pay for services.