NFTs and cryptocurrencies are two of the most talked-about digital assets today. Both are based on blockchain technology, but they serve very different purposes.
In 2024, the global cryptocurrency market reached a value of over $3.21 trillion, while NFT sales exceeded $67 billion. These numbers show how popular both have become, but understanding their differences is key to using them wisely. In this guide, you will learn the key differences between NFT vs crypto and how they work.
Key Takeaways:
- An NFT, or Non-Fungible Token, is a digital asset stored on a blockchain that proves someone owns a unique item, such as digital art, music, or virtual collectibles, and it cannot be copied or replaced.
- Cryptocurrency is virtual money that uses cryptography for secure transactions, operates on decentralized networks, and can be used for payments, investments, or transferring value without the need for banks.
- NFTs are different from crypto in terms of fungibility, as NFTs are unique and can’t be replaced or traded one-to-one, while cryptocurrencies like Bitcoin are fungible, meaning each unit is identical and interchangeable.
What is an NFT?
NFTs or Non-Fungible Tokens can be seen as virtual assets or collectibles in that they are unique digital items. If you own an NFT, you can be assured only one such original item exists. They are used to digitize all kinds of files from art to music, videos, or even in-game content.
Today, after selling an NFT, it’s possible to “prove” who the current owner is, because that information is stored on blockchain. It allows for “recording” the ownership using a token on the Ethereum blockchain for example. Once the ownership record is established on the blockchain, no one can go back and change it. This is also the reason for the worth of the NFT due to the honesty factor it provides.
For instance, many NFTs are sold for personal satisfaction or decoration purposes, while others are used to obtain some benefits or rewards. There are those who view them as an asset class as well – an investment opportunity of sorts. For instance, back in 2021, Beeple’s NFT “Everydays: The first 5000 days” sold for $69 million.
Read our detailed guide on what is an NFT and how it works.
What is Cryptocurrency?
Cryptocurrency, or crypto, is digital money. It doesn’t exist in physical asset form and isn’t controlled by banks or governments. Instead, cryptocurrencies run on blockchains, where all transactions are recorded publicly. This makes them secure, fast, and decentralized.
The most popular cryptos are Bitcoin and Ethereum, but there are thousands of others, each with its purpose. For example, Bitcoin is mostly used as digital gold for saving value, while Ethereum also supports smart contracts, enabling applications like NFTs.
Crypto works by using cryptography to secure transactions. This means people can send or receive money without relying on a middleman, like a bank. Transactions are verified by miners or validators on the blockchain.
Hence, both NFTs and crypto are blockchain-based, but they serve different purposes. NFTs prove ownership of unique items, while crypto is mainly used for buying, saving, or trading value.
NFT vs Crypto: Similarities
NFTs and cryptocurrencies are both digital assets, not physical assets, that rely on the same technology – blockchain. They have some key similarities because of how they are created and managed:
Blockchain Technology
Blockchain technology is like the backbone for both NFTs and crypto. A blockchain is a type of digital ledger, or a database, where all transactions are recorded.
This system is public and secure, so anyone can check the records, but no one can change them. NFTs and cryptocurrencies both use this technology to keep track of ownership.
For example, Ethereum is one popular blockchain that supports both crypto (like Ether) and NFTs.
Decentralization
Another similarity is decentralization. Neither NFTs nor crypto are controlled by banks, governments, or any single organization. Instead, they are managed by a network of computers around the world.
This means you can trade or own virtual assets without needing approval from a middleman. For example, if you buy BTC, it goes straight to your digital crypto wallet, and no one can take it away unless you lose your private keys.
Scarcity
Lastly, both have value because of scarcity. Cryptocurrencies like Bitcoin have a limited supply – only 21 million Bitcoins will ever exist. NFTs are unique by design, meaning no two are exactly the same. This scarcity makes them valuable to collectors and investors.
NFT vs Crypto: Key Differences
Purpose
NFTs and cryptocurrencies serve completely different purposes, even though both rely on blockchain. NFTs are designed for ownership. They act as digital certificates proving that someone owns a unique item. Some NFTs even give perks like access to exclusive events or rewards. Famous NFT collections like Bored Ape Yacht Club are status symbols, with prices running into millions.
Cryptocurrencies are used for payments, savings, or investments. Bitcoin is often called “digital gold” because many see it as a store of value.
Ethereum goes beyond payments; it powers smart contracts that automate deals, making it the backbone for decentralized apps (DApps). Cryptos aim to replace traditional money by offering a faster and cheaper way to transfer funds.
Fungibility
Fungibility is a big dividing line between NFTs and cryptocurrencies. Cryptocurrencies are fungible, which means they’re all the same.
For example, one Bitcoin is identical to another Bitcoin, and they can be swapped easily. This makes them perfect for money-like functions like buying or trading. Smaller parts of cryptocurrencies, like satoshis (1 Bitcoin = 100 million satoshis), make them even more flexible for small payments.
NFTs are non-fungible, meaning no two are alike. Each NFT has unique metadata recorded on the blockchain, showing its ownership history and details.
Imagine two baseball cards: even if they look the same, one might be worth more because it’s rarer or in better condition. That’s how NFTs work. This uniqueness gives NFTs value but also makes them less flexible for trading compared to crypto.
Trading and Marketplaces
Cryptocurrency trading is fast and simple. Popular crypto exchanges like Binance, Coinbase, and Bybit allow users to trade huge billions daily. These platforms offer various features like price tracking, instant trades, and even leverage trading for experienced investors.
Because crypto is fungible, you can trade any amount – down to tiny fractions – with ease. Transactions are also completed within seconds or minutes, depending on the exchange or network.
NFT trading is more niche. You can’t just sell an NFT anywhere; you need specific NFT marketplaces like OpenSea, Rarible, or NBA Top Shot.
Each NFT is listed with its own price, and the process involves finding buyers willing to pay for that exact piece. This makes trading NFTs slower and often more expensive due to gas fees (blockchain transaction fees). The uniqueness of each NFT also means the market isn’t as predictable as cryptocurrencies.
Volatility
Cryptocurrencies are highly volatile. Their prices can change dramatically based on market trends, news, or regulations. For instance, Bitcoin’s price surged to nearly $69,000 in 2021 but later dropped below $20,000 within a year.
This volatility is risky but also offers chances for big profits. Many traders see this as an opportunity to “buy low, sell high”. The volatility happens because crypto is still new and heavily influenced by hype and adoption.
NFTs, while also volatile, behave differently. Their value depends on the item they represent and how much someone is willing to pay for it. A digital artwork might sell for millions one week and struggle to find a buyer the next. However, NFTs are less tied to market-wide trends and more to specific communities or collections.
Liquidity
The ability to convert an asset into cash or another asset quickly and without much loss is referred to as liquidity. Cryptocurrencies are the most liquid type of digital tokens.
Even when the price of virtual currency fluctuates, there is always someone prepared to buy it, and you can always find an exchange to sell in cryptocurrencies. The reason is that cryptocurrencies are globally accessible to trade and trade in smaller units. It is unnecessary to sell the whole of one Bitcoin for a profit; even fractions of it can be sold.
In contrast, NFTs are more difficult to convert. An NFT’s purchase can be challenging because each token is unique and there may not be enough buyers. For example, locating someone willing to purchase a $10,000 NFT can take several months.
Due to the high transaction costs that some NFT marketplaces impose, liquidity is restricted even further. However, this does not negate that NFTs are great long-term investments particularly if they are from well-known collectors or handlers.
How do NFTs and Cryptocurrencies Work Together?
NFTs are powered by cryptocurrencies. For example, most NFTs are created and traded on blockchains like Ethereum. To buy or sell an NFT, you need cryptocurrency, usually Ether (ETH).
So, if you want to purchase a digital artwork or game item as an NFT, you’ll first need to get ETH. It’s like needing dollars to buy a concert ticket; without crypto, NFTs don’t work.
Smart contracts are another way NFTs and cryptocurrencies connect. Smart contracts are self-executing codes stored on a blockchain. These contracts allow NFTs to be created (minted) and sold automatically when certain conditions are met. Ethereum is the most popular blockchain for NFTs because it supports smart contracts. Other blockchains like Solana and Polygon are becoming popular because they have lower fees
Conclusion
In a nutshell, NFTs and cryptocurrencies are closely related but serve very different purposes. NFTs are used to prove ownership of unique digital assets, while cryptocurrencies are like digital money used for transactions and investments.
Both rely on blockchain technology and share similarities, like decentralization and security. However, they differ in fungibility, liquidity, and how they are traded.
FAQs
Can I convert NFTs to cryptocurrencies?
Yes, you can sell your NFT to get cryptocurrency. When someone buys your NFT, they usually pay with a cryptocurrency like Ethereum. Once you have the crypto, you can exchange it for other cryptocurrencies or even traditional money like dollars. However, not all NFTs sell easily, and the value depends on demand.
Is investing in NFTs riskier than cryptocurrencies?
NFTs can be riskier because their value depends on how much someone else is willing to pay. This makes them less predictable than cryptocurrencies like Bitcoin, which have a wider market. NFTs are also less liquid, meaning it can take longer to sell them. Cryptocurrencies are risky too, as their prices can swing quickly, but they’re easier to trade and more widely accepted.
Do I need cryptocurrency to buy NFTs?
Most of the time, you need cryptocurrency to buy NFTs. For example, if you want to buy an NFT on Ethereum, you’ll need Ether (ETH). Some crypto trading platforms accept credit cards, but crypto is the standard payment method. You also need a digital wallet to store your cryptocurrency and the NFT you buy. Read our detailed guide on how to buy NFTs.
What are the differences between NFTs and cryptocurrency?
The biggest difference between NFTs and crypto is fungibility. Cryptocurrencies are fungible, meaning one Bitcoin is always equal to another. NFTs are non-fungible, so each one is unique. Cryptos are mainly used as digital money, while NFTs represent ownership of unique digital items like art or music. They also differ in how they are traded – crypto is widely available on many exchanges, but NFTs are sold on specific marketplaces.
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