Many people are shifting their investment strategies from traditional to digital wallets. Digital wallets can hold several different types of digital currency, including cryptocurrency. Cryptocurrency is an electronic currency form of dollar bills and coins that a person can store in a digital wallet. On the other hand, non-fungible tokens (NFTs) are different from cryptocurrencies. They are unique digital assets that represent real-world items.
Critical Differences Between Cryptocurrency and NFTs
Both cryptocurrencies and NFTs use the blockchain. They also use similar standards and innovation. As a result, they typically involve similar players. NFTs are a by-product of the cryptocurrency culture. A buyer needs cryptocurrency to purchase NFTs. The main difference between NFTs and cryptocurrency is that one is a product, and one is a currency. Like every other currency, cryptocurrency only has economic value. It does not matter which type of crypto token a person has. One Ethereum coin equals one Ethereum coin. Likewise, one Bitcoin equals one Bitcoin. Since NFTs are digital products, their value is not tied to a particular currency. Each NFT has a value that fluctuates with the market.
Digital currency is a currency that can be stored in a person’s digital wallet. For example, a person can turn their digital currency into cash by withdrawing cash from an ATM or bank. A cryptocurrency is an encrypted form of digital currency that uses blockchain technology. Cryptocurrency does not depend on traditional financial institutions like banks to verify each transaction.
Understanding Non-Fungible Tokens
NFTs have been in the news recently. In 2021, an NFT called Beeple’s “Ocean Front” sold for $6 million to Justin Sun. The piece referred to the climate change crisis, and the proceeds from the sale were donated to the Open Earth Foundation. Multiple million-dollar sales have taken place recently. Some celebrities and business people have begun collecting NFTs to add to their digital collections.
People enjoy investing in NFTs because they enable private ownership of digital products. NFTs also create a system of traceability and ownership that allows creators to unlock the value of their digital assets. Digital assets are easy to share but difficult to own without using NFTs.
NFTs are unique digital assets representing real-world property, such as music, photos, trading cards, videos, etc. NFTs are managed in a blockchain digital ledger and purchased and sold online. Instead of purchasing an actual painting to display on your wall, you will purchase an original digital file. Nearly any digital asset can be created as an NFT. For example, buyers can purchase NFTs of real estate, original social media posts, digital characters, GIFs, and more.
One of the main benefits of purchasing an NFT is the transparent ownership records. Every NFT transaction occurs on the blockchain and is written into a digital ledger. The ledger acts as a public record of every NFT transaction. When ownership of an NFT is in dispute, the ledger substantiates the owner of the digital property.
Understanding Cryptocurrency
Cryptocurrency is a type of digital currency that does not depend on banks or other financial institutions to verify each transaction. Owners of cryptocurrency store their currency in a digital wallet. Cryptocurrency is passed around on blockchain technology that enables users to send and receive payments in a peer-to-peer system. When a person transfers cryptocurrency to another person, the transaction is recorded on a publicly available digital ledger. A person can exchange real currency, such as US dollars, for cryptocurrency in order to purchase a product or service.
Some organizations have even created their own cryptocurrencies, referred to as tokens. Perhaps the most well-known type of cryptocurrency is Bitcoin. Bitcoin was created in 2009 and many businesses have begun accepting Bitcoin as payment. Users can purchase and sell Bitcoin using different national currencies in Bitcoin exchanges, which are internet-based marketplaces.
Ethereum is another well-used cryptocurrency. This blockchain-based software allows developers to create NFTs, smart contracts, and distributed applications. Ether is the cryptocurrency used in the Ethereum network. Litecoin is another peer-to-peer, open source cryptocurrency. Litecoin allows people to transact payments without a third party or bank. Tether is a stablecoin. The price of Tether is directly linked to the value of the currency it represents, such as the yen, Euro, or U.S. dollar. Ethereum and Bitcoin prices fluctuate constantly, but Tether is someone more stable because it is linked to national currencies.
NFTs are Purchased Using Cryptocurrency
Ethereum is a popular cryptocurrency like Bitcoin. The majority of NFT transactions exist on the Ethereum cryptocurrency blockchain. Ethereum creates permanent digital records of every NFT transaction using the Ethereum cryptocurrency. Ethereum is like Bitcoin in that it creates a permanent record of every transaction using Ethereum. Once a buyer uses a cryptocurrency to purchase the NFT, they can seek permission from the creator to make copies of the NFT.
The main difference between cryptocurrencies and NFTs is that cryptocurrencies are fungible by their very nature. For example, one Bitcoin, which is a type of cryptocurrency, equals another single Bitcoin. However, one NFT does not equal another NFT because every NFT is by nature unique, distinct, and holds a different value. The value of NFTs will go up and down depending on their demand and perceived value by the consumer.
Reach Out to an Intellectual Property Attorney
Are you interested in expanding your portfolio to include cryptocurrencies and NFTs? Have you already purchased NFTs and have a legal question regarding your investment? As we all look forward to uncharted territory in the world of cryptocurrencies and digital assets, having an experienced attorney on your side is essential.
The attorneys atAU LLC have extensive experience representing clients in legal matters involving NFTs and cryptocurrency. We stay on top of all the recent legal developments regarding these new types of assets. Contact us today to schedule your initial consultation and learn more about how we can protect your rights and digital investments.