What is the difference between Crypto Vs NFTs? It’s easy to mix the two up. Learn the key difference.
“What are they?” That’s what a friend wanted to know when I showed him JPEG images of some NFTs I bought.
“Are these just JPEGs?” he said. “Why would you spend money on this?”
I explained some of the use cases of NFTs to him.
“But isn’t buying an NFT the same as buying crypto?” he asked.
Non-fungible tokens or NFTs are a subset of cryptocurrency. The most famous NFTs to date are CryptoKitties, CryptoPunks, and Bored Ape Yacht Club.
The NFT space burst to the fore 2021 when Mike Winkelmann, aka Beeple, sold his NFT digital artwork Everydays: The First 5000 Days for an astonishing $69 million via Christie’s auction house. Then, celebs like Eminem started picking up NFTs too.
NFTs predominately exist on the Ethereum blockchain are bought and sold with cryptocurrency, Eth. These days, thousands of NFT collections exist, much like cryptocurrencies. Considering the plethora of complicated language, jargon, and hype surrounding cryptocurrency and NFTs, confusing these Web 3.0 assets is easy.
In this article, I’ll explain the key differences between NFTs versus cryptocurrency. You can watch the video that accompanies this article below.
Crypto Is Replaceable, NFTs Are Irreplaceable
If someone sells a Bitcoin, loses one, or falls prey to scammers, they can buy another Bitcoin from an exchange. That cryptocurrency purchase is indistinguishable from the previous holding, aside from a monetary loss or gain. Similarly, if someone loses a hundred dollar bill, they can replace it with another hundred dollar bill.
NFTs, on the other hand, are technically irreplaceable. You could buy another NFT from the same collection, but it’s a different piece from the same collection, much like comic book covers, trading cards, or rare stamps.
Sure, you can right-click and save as the original JPEG file, but that’s not the same as becoming a blockchain verified owner of an NFT. Plus, saving a JPEG to your computer doesn’t open up the same NFT use case that holders get.
Both cryptocurrency and NFTs are inherently risky and open to scammers. You are responsible for NFT security. Fail to keep a seed phrase, software or hardware wallet safes, and you risk being scammed and losing your Web 3.0 investments.
Unlike traditional scams, victims have little recourse apart from calling foul on social media. You can easily find dozens of posts from scammed BAYC holders complaining about giving away their seed phrases and losing their apes on Twitter.
NFTs Are A Type of Social Proof
Owning an NFT has more visibility and Web 3.0 kudos than holding cryptocurrency in a Coinbase or Ledger wallet. If a celebrity like Jimmy Fallon or Eminem buys in NFT and uses it as a Twitter avatar or picture-for-profile, we can easily verify proof of ownership by checking the public ledger on Etherscan…or by using Twitter Blue’s verified NFT service.
In theory, anyone can take a JPEG and use it as their profile, but it won’t accumulate the same reputation online, and it’s similar to ripping off a stock image.
An NFT collector can use their picture-for-profile purchase to create a digital personal or avatar separate from a real-world identity. If paired with an ENS name, it’s a good way of protecting their privacy. You can’t do that with a JPEG.
Learn more about what you can do with an ENS domain name.
Crypto, on the other hand, is the digital currency that a persona can use to tip other creators and to purchase digital goods.
Perhaps you don’t care about becoming a verified holder and are content to simply look at the JPEG or image without spending real-world money or FIAT?
In that case, NFTs are simply something to enjoy and joke about! But you can’t exactly look at a Bitcoin and appreciate it unless you’re a coder and love reading technical whitepapers.
Crypto Is More Liquid Than NFTs
Economists and cryptocurrency skeptics claim it’s a closed system, and holders find it difficult to exchange their Bitcoin or Ethereum for real-world goods and services.
They may have a case to make unless you live in countries like El Salvador, where Bitcoin is legal tender, and Eastern European countries like Lithuania, which are more receptive to digital currencies. That said, anyone can easily transfer their crypto to an exchange like Coinbase and trade it easily back to USD or Euro within minutes.
It’s harder to do that with NFTs. As an NFT owner, you can estimate a piece’s value based on the floor price for the project as a whole and the NFT’s unique traits. NFTs from established projects sell relatively quickly. However, it can take days or even weeks to sell more expensive and rarer NFTs back to Ethereum and then dollars.
No matter how quickly you sell it, potential returns are skewed by fluctuations in floor price for the NFT and Ethereum. Think of NFTs as a type of digital property, and like any property, they’re less liquid than cash or crypto.
NFTs, Unlike Crypto, Are Unique
NFTs within a collection are all easily distinguishable. Browse through the 10,000 NFT from Bored Ape Yacht Club, and you’ll see each one possesses unique traits like clothing, eyes, fur, earrings, hats, and so on. If you’ve ever played a role-playing game, it’s kind of like the traits of playable and non-playable characters within the game. Rarer traits translate into a higher resale value. We want what we can’t have.
On the other hand, you can’t exactly compare two Satoshi, Bitcoin, or even one hundred dollar bills and determine what sets them apart. There are some exceptions.
A hundred-dollar bill has sentimental value because someone autographed it, or it has a lower, rare serial number. In that case, it’s unique and worth more to collectors… or the owner.
NFTs are Indivisible; Crypto Is Divisible
Owners can’t easily divide up a single NFT from a collection like Bored Ape Yacht Club or CryptoPunks into smaller pieces.
It’s a bit like finding a rare stamp or a comic book cover and wondering if you can rip it up and give a piece to friends and family.
You can, however, divide up a Bitcoin in Satoshi or 1 Eth into smaller amounts without any discernible difference to users or holders.
Caveat: it’s possible to fractionalize some blue-chip NFT projects whereby several buyers can pool their crypto resources together to own the NFT outright, much like buying shares in a company on the stock market.
Crypto Investors Speculate, NFT Investors Collect
Both crypto and NFT buyers acquire assets to either hold or speculate on. Like it or not, NFTs and crypto combine the best and worst of capitalism with technology. The crypto investor understands their purchase forms part of a greater whole. They stack sats or Satoshi and accumulate Bitcoin over time.
An NFT buyer, on the other hand, doesn’t expect to acquire every piece within a collection (unless they’re a whale or it’s a rare collection).
Aside from profits, they buy because they like digital art or enjoy acquiring digital collectibles. They also buy for airdrops and access to related NFTs or developing use cases.
NFT buyers love showing off their NFT collections and regularly take to Twitter to tweet about their digital collectibles and what’s inside of their wallets. It’s a digital forming of flexing akin to what someone does after buying a pricey Rolex or a Louis Vuitton handbag. They also use ENS domain names to manage their digital wallets while protecting their privacy.
NFTs Are Assets For The Metaverse
Despite what Mark Zuckerberg says, the Metaverse is a shaky, ambiguous concept describing how we’ll interact with each other online in 3-d environments and via virtual reality. It doesn’t help that current Metaverse prototypes look like video games from the 1990s (and not Half-Life).
That said, NFT projects claim they’re becoming a type of digital property or real estate that collectors will use within the Metaverse to interact with others. Instead of using a picture superimposed onto a body, you could represent yourself in the Metaverse with an NFT. Or you could go and see an NFT artwork in the Metaverse that your friend owns.
If the Metaverse materializes, we’ll use crypto like Bitcoin and Ethereum to pay each other. But you can’t go and see a Bitcoin.
NFTs Offer Access And Community
Some NFTs serve as exclusive passes or membership to online communities whereby you can connect with other holders. Owning and displaying NFT signals to other holders that you’re part of a tribe. It’s kind of like wearing your favorite sports team’s jersey or vising their stadium.
It’s a good way of connecting without worrying so much about scammers. That’s much harder to do if you simply own crypto. There’s no club for most cryptocurrency hodlers unless you count pump and dump groups or forums on the Bitcoin website.
NFTs are More Volatile Than Crypto
Ethereum and Bitcoin are more mature digital assets. They’ve been around since 2009 and 2015, respectively and held by many more people.
Established NFTs like Bored Ape Yacht Club and CryptoPunks are much newer. CryptoPunks launched in 2017 and Bored Ape Yacht Club in 2021.
The floor price of NFTs can shoot up by hundreds of per cent and back down again over a few weeks. As NFTs are predominantly traded and valued in Eth, they’re even more risk due to Ethereum’s price fluctuations. But perhaps you don’t care about floor price.
The wider NFT market is also full of scammy derivative projects, many of which are naked cash grabs. It’s like the initial coin offering boom that plagued the cryptocurrency space in 2016-2017.
NFTs Are Rarer In Supply Than Crypto
Usually, an NFT project launches with a limited set available for minting or purchasing on the secondary market. The number of pieces in a collection is typically 10,000. Other common numbers are 5,000, 15,000… or one.
Cryptocurrency is also limited in supply too. Only 21 million Bitcoin will ever be created. That’s more than 10,000 NFTs from a collection like the CryptoPunks.
Critics argue both NFTs and crypto employ artificial scarcity to drive up their value. They’re right, but artificial scarcity isn’t a new concept. Nevertheless, a limited supply doesn’t mean you have to buy the NFT or crypto.
It’s Harder To Buy NFTs Than Crypto
These days, almost anyone can buy crypto within minutes. You can set up an account on an exchange like Coinbase, Binance, or Kraken, connect your bank card, and buy Ethereum or Bitcoin. Or you can transfer funds from your bank account. Onboarding is relatively frictionless.
Coinbase claims some 72 million-plus users, while OpenSea claims a smaller one million. So it’s harder to buy NFTs…for now.
A buyer must complete all of the above steps and transfer Ethereum to your digital wallet like Metamask. Next, they must connect this wallet to an NFT martlet place like OpenSea, LooksRare, Rarible or Nifty Gateway. These marketplaces act as a window onto the wider public ledger.
A buyer can use them for browsing available NFTs. If they’ve enough money for the NFT, for gas, and to cover the exchange’s fees, they can finally pick one up. For non-techy investors, that’s more involved and complicated than downloading the Coinbase app and hitting buy (and paying the Coinbase tax).
NFTS Vs Crypto: The Final Word
Figuring out the differences between NFTs and crypto is relatively straightforward but if you’re in doubt, use this handy mental shorthand:
1 USD = 1 USD
1 BTC = 1 BTC
1 BAYC ≠ 1 BAYC