Almost everyone who buy NFTs also buy crypto.
Therefore, it stands to reason many people often mistake NFTs and Crypto as the same thing.
They are not.
There are very distinct differences between them, including how they have value, how they increase and decrease in value and their uses.
NFTs are Non-Fungible Tokens which are minted and stored on the blockchain as a digital asset. Crypto are tokens of currency which can increase and decrease in value based on market capital and demand. NFTs are purchased using Crypto. Although both are stored on the blockchain, this is where the similarity ends.
In this guide I will explain the core differences but in as simple and straight forward manner as I can, with as little jargon as I can add, but where jargon is needed, I will explain as best as possible.
The NFT and Crypto space is full of what looks like technical complicated jargon. Unfortunately, it matches the current state of the industry, but things are about to change!
What is an NFT
An NFT, or Non-Fungible Token, is a unique asset on the blockchain.
It has a unique identifier (address), unique audit history showing the buyers and sellers and a unique authentication of existence.
Ok, we started off very technical, but bear with me and I will try and explain this with some analogies.
No one is investing in NFTs right now because of the fact they have a unique identifier on the blockchain. This is a benefit, but not a reason. They are investing for other reasons.
One way to look at an NFT is a digital piece or art or other type of collectible such as comics.
To better explain what an NFT is, let us take a look at two types of NFT buyers:
NFT Flipping
Much of the industry is made up of NFT flippers.
These NFT buyers are continuously looking for popular NFT projects to get in early too, buy at a cheap price or during mint ideally through a Whitelist place, and then sell on quickly after launch for a profit.
It is estimated that 80% of NFT buyers on the market fall into this category.
Although they are considered a frustration in the industry, they do help to influx money into collections, and continued royalties which are attributed back to the NFT collection for every subsequent resell.
These NFT buyers care little about the art, or the project, but the potential and their own gain.
It won’t be long before these types of buyers are in the minority, but for now they form part of the NFT ecosystem and will be for the next 2 years to 5 years at least.
As a comparison there have been speculators in the domain name industry for 20 years now since Joel Comm made millions buying and selling domain names back in the early 2000s.
Despite domain names becoming less and less of a commodity since the search algorithms have changed so much in the past two decades, it is still a practice tried in abundance today.
So, NFT flipping is likely to remain for many years to come if past history is repeated.
NFT HODL
An NFT HODL is an NFT buyer that buys now and plans for keep for the foreseeable future believing the NFT will be worth considerably more in 12 months-time or more.
HODL means to Hold On (for) Dear Life.
At times an NFT buyer may buy simply because they like the art or resonate with the artist.
They are no looking for a quick profit, or maybe they are not looking to sell at all.
I, myself hold an NFT because of the ethical cause of the project, and what they are doing with the money collected through original mint and ongoing royalties (building schools in developing countries).
The NFT HODL will be those people who take the NFT industry into a true collectible industry, and be the reason some collections will 10x, 50x, 100x or even more than their original value in years to come.
Analogy of an NFT
A simple analogy of an NFT could be that of a trading card.
Some trading cards sell for tens of thousands of dollars, even millions.
The most expensive trading card sold for $3.2m!
The value of these trading cards is down to the status symbol of owning it, it’s scarcity and its overall popularity.
In fact, the most expensive NFTs dwarf the selling price of the most valuable trading card in history!
There are three Crypto Punk NFTs that sold for more than $7m alone. Crypto Punks launched in 2017 compared to the most expensive trading card which was produced more than 100 years ago in 1909.
You may be wondering what on earth is going on when the relatively new NFT industry has already started to dwarf the physical trading industry in some niches.
That is probably a question best covered in some of our other articles, or for another time as it is out of scope here, but ultimately an NFT is a unique tradable commodity seen as a digital asset that can increase in value over time based on its rarity, popularity and the status symbol of owning it.
What is Crypto
Crypto (short for cryptocurrency) is a digital currency traded through online cryptocurrency platforms such as Binance and Coinbase.
Like NFTs they also exist and can be verified on the blockchain, but that is where the similarity ends.
There are many different cryptocurrencies as other individuals and companies attempted to achieve the same success Bitcoin did between 2010 and the current day where one Bitcoin was worth $0.0008, whereas today that same Bitcoin in 2010 is now worth more than $40,000!
That is an incredible return on investment!
Just $1 invested in Bitcoin in 2010 would be worth $50m today!
That’s a 5,000,000,000% return on investment!
Unlike NFTs, where each one is uniquely different to any other NFT, one Bitcoin is exactly the same as another and has the same value.
One Bitcoin is worth the same as any other Bitcoin, just like one dollar is worth the same as any other dollar.
Crypto is a unit of currency.
Unfortunately, some cryptocurrencies work differently to others. Some work on a model of scarcity which helps increase price as supply decreases, and other crypto has an unlimited supply.
Ultimately crypto works as a token or unit of currency, and the value of such is based on the demand, how much is invested in to the crypto’s market capital based on the number of tokens.
Just like any other economical market, whether decentralized or not, there is a demand and supply factor which plays a huge part in the price of the crypto per token.
Analogy of Crypto
A simple analogy of crypto could be that of stocks and shares in a business.
As revenue begins to pour in, and profit increases, the market capital of the business rises – and therefore every share owned by shareholders also increases in value.
Similar could be said for crypto.
Money is invested in individual cryptocurrencies on the speculation the crypto will increase in value over time.
As more money is invested in the crypto, the market cap increases, and so does the value of each token of currency as supply meets demand,
The crypto market is incredibly volatile.
It wasn’t too long ago that a tweet by billionaire Elon Musk could see the value of a cryptocurrency – like Dogecoin as an example – sore overnight!
Crypto has been replaced in by NFTs as of late by way of fast returns, but many crypto currency holders became millionaires in a short space of time with either good due diligence and investment in the right crypto, or by pure chance and fortune.
Differences Between NFTs and Crypto
An NFT is a digital asset that can increase and decrease in value based on its own rarity, demand, and luxury brand status. Crypto, on the other hand, is a digital currency. Its value is based on market capital and the number of tokens in circulation. Crypto is used to buy NFTs.
You can not buy Crypto with an NFT, but you can buy an NFT using the digital currency of Crypto.
Think of the difference between an NFT and Crypto just like a piece of art and the dollar.
The Dollar would be comparable to Crypto, where the piece of art is comparable to an NFT.
You need dollars (currency) to buy the piece of art (asset).
You can sell the piece of art for dollars, just like you can sell an NFT for crypto.
What can confuse many is the fact both the NFT and Crypto are stored in a digital wallet, but using the art analogy, imaging taking all your hard-earned dollars and the piece of art and putting them in a safe or vault.
They are both being held in the same secure place, but a piece or art not the same as dollars.
A digital wallet is a secure holding for both NFTs and Crypto, just like a vault or safe would be for physical currency and assets.
