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What is the difference NFT and Crypto?
The concept of a non-fungible token (NFT) is undoubtedly intriguing. Granted, it's not as if what we have now with cryptocurrencies is terrible, but there are several benefits to NFTs that may make them more desirable in some instances. So what are these benefits? How do they differ from cryptocurrencies? What are the disadvantages of this new kind of token? We'll explore these questions in detail below.
What is NFT?
An NFT is a kind of digitalized token that is not interchangeable. They each have their own set of information and features, which is how they become distinctive from one another. The word "non-fungible" means that these tokens are each one-of-a-kind, or "non-interchangeable," instead of fungible tokens, which can be substituted.
NFTs were first introduced in December 2017 with the launch of Monero's XMR tokens. It wasn't long before other cryptocurrencies followed suit to create their own NFTs for use in specific applications. The most popular NFT is "CryptoKitties," one of the top-grossing virtual cats on the Ethereum network. It was created to raise money for a non-profit cat sanctuary and reached a total value of over $5 million before being halted in November 2018 due to a bug that caused duplicate cats on the same blockchain address.
Though there are many similarities between NFTs and cryptocurrencies, there are numerous significant differences. In this article, we'll explore these similarities and differences by comparing NFTs to cryptocurrencies and comparing them to each other.
Differences Between Cryptocurrencies and NFTs
The most important things to remember with cryptocurrency are the assets that back them up. An example is how Bitcoin backs up its currency: it uses the electricity needed to generate Bitcoin as proof that it can be trusted to hold value in the future. In other words, if you're using your computer power to generate Bitcoins, and you want people to trust your coins as having value, then you need someone else willing to buy them from you later. The same applies to NFTs; they must be backed up by something of value in the real world.
In addition, algorithms define cryptocurrencies, which are the rules that control how many tokens exist and how they're distributed. It makes cryptocurrencies irreversible, which is a significant property to have. There is no way a cryptocurrency can be reversed or undone like with fiat currency such as the U.S. dollar or Russian ruble today. Cryptocurrencies cannot be altered like fiat money because of this security feature (see next section).
For an NFT to work, it must conform to some rules and standards for its use. For example, most NFTs are limited to a specific amount of tokens, have a fixed supply, or have an algorithm for distribution. There is also no way for an NFT to be reversed as there can be with cryptocurrencies. An NFT with a fixed supply (e.g., CryptoKitties) can never increase in-store, while if an algorithm is used, then the number of tokens available cannot be changed by anyone.
What Are the Similarities Between Cryptocurrencies and NFTs?
Looking at their differences above and how they differ, it's possible to see how they are similar in some ways too.
Both cryptocurrencies and NFTs are identifiable to users and have unique identifiers for each user or owner. In this way, ownership is permanent and cannot be changed. The only way to change the request of the NFT is to erase it from the blockchain, which won't happen because it's irreversibly tied up in the blockchain.
While this is not a top-level feature for tokens or cryptocurrencies, both are related through their ability to scale. If an NFT has many users who need to use it in some way and there aren't enough tokens available to execute those operations (e.g., too many people want to buy one piece of art), the token becomes useless. The same goes for cryptocurrencies, as your coin will go unused in case to exchange for something that doesn't accept a particular cryptocurrency. In both cases, the blockchain's ability to scale solves these problems.
However, this is not the case with all cryptocurrencies; some can be sent from one network to another. For example, since Bitcoin is an open-source protocol, it can be mined on multiple networks by multiple people.
The whole point of cryptocurrencies is to have a decentralized system where people own and operate their networks without any central control or ownership. No controlling entity (e.g., banks) can take control of these networks, making cryptocurrencies very secure to use. NFTs and their blockchains are also decentralized in this way. They can't be taken over or controlled by one company, organi.zation, or person.
Cryptocurrencies and NFTs are related in many ways. Both need a network to operate correctly, both have tokenization involved in their operation, and both are decentralized while still being identifiable to their owners and users. The main differences between the two assets are how they identify themselves, what scale they operate on, what data they store, how tokens are generated and distributed, and how transactions work within each network.
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