The introduction of Web 3.0, along with cutting-edge technologies, including blockchain, AR, and VR, has brought many changes to our online activities experience. Nowadays, the digital world has tightly surrounded us and influenced some of the most important aspects of human life, such as business, interaction, health care, etc.
For those who have never directly interacted with the digital world, concepts such as NFT, cryptocurrency, metaverse, and DAO can be strange and vague. Even the more informed people in the digital world may not know the difference between NFTs and Cryptocurrencies, EFT, Metaverse, and DAO. However, it is essential to know their meanings to make a profit in the digital world.
Therefore, we try our best to introduce each concept mentioned above and discuss how they interact and their main differences. But, in the first place, we need to understand the technological infrastructure they depend on to exist. The technology is called blockchain.
What is Blockchain?
Blockchain has provided a new data-sharing and management system, allowing decentralized data storage in a democratic network of users. Thus, blockchain can feed Web 3.0 and be used to reach the full potential of the new version of the Internet, or Web 3.0.
Blockchain works similarly to a public ledger to collect and record data in blocks. Each piece of the data record, for example, a transaction, is stored in blocks that are chained to each other and for a chain of bookkeeping, commonly known as the blockchain. The block of data is added to the distributed ledger only if all the nodes in the system verify it. Thus, the verification process and a large number of nodes in the ledger provide high security for blockchain.
Blockchain has brought about the existence of many other developments in the digital world, including NFTs, cryptocurrencies, ETFs, metaverse, etc. Although all these concepts use blockchain technology to live in the digital world, they are distinct from each other in some important ways. Let’s start with non-fungible tokens or NFTs.
What are NFTs?
Simply put, a non-fungible token (NFT) is a unique unit of data on a blockchain linked to digital and physical objects. It uses a smart contract to provide irreversible proof of ownership. The data provided in an NFT can be tied to digital images, songs, videos, avatars, real states, etc. NFTs may also give their owner access to exclusive merchandise, tickets to live or digital events, or even physical assets like factories, buildings, etc.
Considering the function of blockchain technology, individuals are allowed to create, buy and sell NFTs in a completely verifiable way without the need for a third party. More importantly, NFTs are one-of-a-kind and cannot be replicated. This explains how NFTs are different from cryptocurrencies. Let’s have a closer look.
NFTs vs. Cryptocurrencies
As we previously mentioned, both NFT and cryptocurrency use blockchain technology. However, they are different not only in nature but also in usage.
Cryptocurrencies are digital currencies. There are different cryptocurrencies available in the market and Bitcoin (BTC) and Ethereum (ETH) are the most well-known. Each cryptocurrency functions within its blockchain system. Anyone can buy and sell cryptocurrencies on decentralized exchanges like Binance.
Cryptocurrency is used for all transactions on the blockchain. Crypto exchanges make it possible to purchase or convert cryptocurrency into fiat currencies (dollars, euros, etc.). In this respect, cryptocurrencies are fungible tokens, meaning that 1 Bitcoin, for example, is interchangeable with one other Bitcoin. Thus, cryptocurrencies are all fungible because they are not unique and can easily be traded and replaced.
In contrast, an NFT is a unique and irreplaceable digital asset that is traded using a cryptocurrency determined in a marketplace; therefore, an NFT’s value is independent of the currency used to purchase it. Therefore, NFTs are non-fungible.
On the other hand, as said above, NFTs are one-of-a-kind, meaning that no two NFTs are the same. Each NFT is a unique unit of data that has no identical version. Therefore, they are non-fungible and cannot be replaced by another one.
NFT and ETF
An exchange-traded fund, or ETF, is an investment fund that includes a group of assets. It is traded on stock exchanges, and everyone can buy and sell shares ETF just like any other stock.
ETF can even track NFT-related stocks. Holdings can be active in NFT marketplaces, blockchain networks, and other related trading platforms that NFTs are traded on. Instead of buying and selling NFTs, ETFs only choose to invest in companies that are connected to NFTs in some way.
NFTs became a buzz in the digital world in 2021. The NFT market witnessed the launch of several popular NFT collections, such as Bored Ape Yacht Club, in 2021, which led to growing interest in NFT investing. NFT-ETF is one of the most recent developments in the field. NFT ETF is an ETF that focuses on companies involved in NFTs. It allocates certain funds to each holding based on their preferences.
The first and only NFT-ETF is Defiance Digital Revolution ETF which launched on Dec. 1, 2021. With the further development of the NFT market, it is expected to have more NFT ETFs available in the market.
NFTs vs. EFTs
Extremely Fungible Tokens, or EFTs, are a movement from those who are concerned about the functionality of NFTs. In fact, EFTs are created in reaction to NFTs. Extremely Fungible Tokens are identical and non-unique. These features allow them to be duplicated and shared by several people. EFTs aim to create a more democratic and accessible form of digital art and media rather than a unique art that certain rich investors solely control. Many argue that EFTs can help the digital world prevent environmental damage.
NFTs and DAOs
Decentralized Autonomous Organization (DAO) is an organization run by a group of people with no company hierarchy. Group members vote for rules and decisions related to a project or company. Thus, a DAO works with no executive board and can function autonomously and without leadership. All group members have similar interests and have equal power to vote for a common goal. As a digital, community-based organization, a DAO is powered by blockchain technology, making control and ownership more democratic and transparent.
DAO can play the same role in the NFT space, and NFT creators, investors, and communities can collectively decide on various aspects of an NFT project and direct their company. Besides, DAOs have the potential to help NFT creators bring a group of investors together and launch an NFT collection, especially when investing in a project requires a large amount of money.
Moreover, smaller projects or creators can create a DAO community to improve their collections and spend more on their NFTs. A dedicated DAO community gives them a chance to increase their volume of NFT trades and make more profit. Creator DAOs, therefore, can raise their fund and invest in different NFT projects by allowing more people to vote on the digital assets they most want to be successful.
NFT and Metaverse
NFTs and metaverse are currently the two buzzwords in the digital world. Although both NFTs and metaverse are based on Web 3.0 and use blockchain technology, they differ in several aspects. Let’s see how different they are.
NFTs are unique digital assets that offer ownership and authenticity, while Metaverse provides its users a platform to create, experience, and interact with virtual content and other users. Therefore, NFTs can be used in the metaverse to represent the ownership and value of virtual assets.
Another key difference between NFTs and the metaverse is their use and purpose. NFTs represent the ownership and value of digital art, collectibles, and other virtual assets, which can be traded and exchanged in NFT markets. Metaverse, on the other hand, is a platform for creating and experiencing virtual content and interactions. In fact, Metaverse provides a space for users to create and share their own content and to work and interact with others.
Thus, Metaverse is a vast virtual environment developed to create an open, shared, persistent, and highly participatory Internet. NFTs, on the other hand, have the qualities of immutability, non-fungibility, and security.
NFTs and Copyright Law
In most cases, NFTs are digital files, such as photographs, videos, audio files, etc., stored on a blockchain and sold with cryptocurrencies. In fact, a link to the actual photo, video, or audio file is stored on the blockchain rather than the actual digital art.
Like any other asset, NFT creators automatically acquire a copyright of their artwork. Upon creating a copyrighted work, the copyright owner has exclusive rights to reproduce the work, prepare derivative works, and distribute copies of the work. NFT creators also gain copyrights since NFTs are created based on an original piece of artwork and can be categorized as a copy or even a derivative of the original work.
Any right to NFTs is defined in their smart contracts, and these contracts allow NFT creators to sell NFTs without transferring the copyright to a new owner to create and sell a reprint of the art piece. Therefore, it is essential to check if an NFT has a rightful copyright owner.
NFTs have attracted much attention in the digital world, and many have invested in non-fungible tokens. However, many do not know the function of NFTs and how they differ from other digital world wings, like cryptocurrencies, metaverse, ETF, etc. Besides, there is also doubt if NFTs follow copyright laws.
In this article, we described the nature of an NFT and explained the differences and relationship between an NFT and other key concepts in the digital world. Knowing the functionality and potential of these key terms may help readers make better decisions while being active in the digital world.
- Can JPEG be an NFT?
Sure. A JPEG can be minted as an NFT. In fact, NFT creators can mint their digital art, whether a JPG, PNG, GIF, or other formats, to NFTs.
- Are NFTs more stable than coins?
Both NFTs and cryptocurrencies live in the digital world and are available in their related markets in the digital world. Both NFT and crypto markets can be subject to market fluctuations and experience ups and downs. Thus, NFTs and cryptocurrencies should be evaluated on their own merits.