Crypto101: Coin vs. Token vs. NFT
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Crypto, NFT, Tokens… In 2022 almost everyone is familiar with these terms. But not everyone knows what they really are.
If you are interested in the development of the Blockchain, or just don’t want to be outdated, we highly recommend spending a few minutes going through these common terms in 2022. Your future may be deeply influenced by them.
What are Crypto, Token and NFT?
The definition of Crypto Coin
Crypto is decentralized digital money. Its creation and management are controlled by cryptography.
The underlying technology behind cryptocurrencies is Blockchain, which is a data storage technology that prevents anyone from changing the data stored on the Blockchain.
Unlike Fiat like USD in the real world, there is no centralized authority or server to manage the account and verify transactions on the Blockchain.
Instead, they are run by thousands of computers distributed around the world. Transactions are verified by network nodes through cryptography and recorded in a public distributed ledger.
Example: BTC is the first crypto currency. The issuing of BTC depends on the mechanism of the BTC network, rather than the third party.
The definition of Tokens
Token is an application of the Blockchain technology, but tokens have no their own Blockchain like the Bitcoin network.They operate on Blockchains like Ethereum, which supports the function of smart contracts, which is actually a computer program that can be executed automatically when the criteria set in the contract is fulfilled. When a token is exchanged, it is physically moved from one place to another.
As a result, it allows users to issue tokens without building up a Blockchain ecosystem. Tokens can be divided into fungible and non-fungible. Tether is a kind of fungible token based on the Ethereum Blockchain which is linked to the value of USD.
The value of each USDT token is the same, while the value of each non-fungible token is not, as they have greater usage which is not only as an unit of account like crypto or token.
Example: USDT
The definition of NFT
NFT(Non-Fungible Token) is the proof of ownership of a digital asset recorded on the Blockchain.
There is no effective way to protect the rights of digital assets like videos, photos or digital art creations before the application of NFT. People may copy and paste easily. Creators have to spend a huge legal cost to protect their rights of ownership.
But in a NFT, it contains ownership details for easy identification and transfer between holders. A unique identifier is added to each unit. This means each unit of that asset is different from all the other units – this characteristic is called non-fungible.
The data of a NFT is stored on the Blockchain, which can’t be changed by any people easily. Each token is unique and irreplaceable.
With the application of NFT, people can carry out the transactions of digital assets with other people through the internet. NFT has encouraged more people to create valuable digital assets.
Example: CryptoPunks is one of the famous and expensive NFT collections on the Ethereum blockchain. The project was launched in June 2017 by the Larva Labs studio. The value of CryptoPunk #5822 is $23.7million.
Similarities and Differences between Crypto and Token
NFT is a form of tokens. Both crypto and token are applications of the Blockchain technology. While they share many similar features, they are completely different things.
Similarties
Distributed: All the data, account and transaction records of both crypto and token are stored on the Blockchain, which is distributed in thousands of nodes around the globe, rather than a central server. The security of the data is ensured.
Decentralization: Both crypto and token are a peer-to-peer system that can be transferred without any intermediates.
Immutable: All the data of both crypto and token is stored on the Blockchain, which can’t be changed easily unless the 51% attack is raised, which requires a huge cost.
Differences
| Crypto | Token | |
| Function | Crypto acts as money, such as a medium of exchange, store of value and unit of account. For example, ETH is paid for the execution of a smart contract. |
The fungible token like USDT can be used like crypto as an unit of account. But tokens have a greater variety of usage, like NFT is the proof of ownership of an asset, identity management, or the proof of specific rights of a platform, like voting rights in a Dao. For example, Top Shot is an NFT marketplace for buying, selling, and trading video ownership of different NBA moments. |
| Fungiblity | Fungible, there is no difference between each Bitcoin. The value of each Bitcoin is completely the same. | Can be fungible or Non-fungible. Fungible tokens like USDT are similar to Bitcoin, there is no difference between each USDT. But each NFT is unique and irreplaceable. Just like the value of each Crypto Punks is different. |
Just take an example, crypto and fungible tokens are similar to the concept of money. The value of every 100 usd note is completely the same.
The NFT is similar to stamps. The design of each stamp may be different. The identical and special differences sometimes make its value reach over millions of dollars.
The future world with Crypto, Token and NFT
Both crypto and NFT may not only exist in the metaverse in the future. They actually will change our future lifestyle, which may be completely out of your imagination.
Crypto and transaction
Crypto does not only act as a digital currency, which will replace fiat. It encourages the trend of decentralization. More and more peer-to-peer transactions or services can be directly offered without any intermediates.
In the future, we may carry out trustless transactions with strangers on the internet with the help of crypto like BTC or ETH without going through the complicated verification process by intermediates like Amazon, Paypal, credit card companies or banks. We may enjoy more and more high quality products or services with a lower price and higher efficiency.
Alternative usages of crypto
Crypto is not only for transactions. There are more applications like payment (BTC), the infrastructure of a computing platform (ETH, BGB), a way of fundraising without intermediate (UNI), purchasing a specific service (FIL)…
For example, Bitclout is a decentralized social media platform aiming to create a more fair social media ecosystem. It was created as a reward to encourage content creators who bring value to users, like entertainment, fun or information.
Token economy
With the help of the Blockchain platform like Ethereum,supporting the smart contract function, businesses and individuals can create and issue their own tokens in a more effective way without developing a new Blockchain.
Through holding a token of a community, the users may have the right of voting and governance to decide the future development of the community.
NFT and Art
NFT is not only a fancy gimmick to take people’s money. It encourages people to create more valuable digital assets.
Each token is unique, immutable and irreplaceable. Details of digital assets are stored on the Blockchain safely so that users don’t have to worry about the proof of ownership or buying a faker when they carry out the transactions.
With the proof of ownership, creators have more incentives to create valuable digital assets like digital art, video, photos, songs. Unlike traditional art, when an artwork is sold, the creator has no right to receive any profit generated from the artwork he created.
But in the NFT economy, creators may enjoy a fairer ecosystem, like receiving a recurring profit through renting them out, or enjoy a fixed percentage of the bonus collected from each transaction of the digital artwork. The mechanism of NFT provides more incentives for creators to create more value for the world.
Alternative usages of NFT
NFT is not only for art and is limited in the metaverse. It can be used to protect property rights in the real world, like the property rights and transaction records of the real estate.
As the legal right, information of the assets and ownership, transaction records…every detail about the assets is stored on the Blockchain, which is immutable and can’t be changed by anyone easily. It makes the data become more transparent. Buyers will have more information for reference before deciding to buy an asset.
As the data on the Blockchain is stored in thousands of nodes around the globe, rather than a centralized authority, like the government office. If the information of an asset on the government server is deleted, no one can prove ownership of the asset.
It really happened in the real world. In a city in Iraq, the terrorists destroyed the government office and most of the data stored was lost. No one can prove all the ownership of real estate in the city.
But with NFT, all the data and transaction records will be stored in the Blockchain, which can not be deleted or changed easily. People do not need to worry that ownership will not be protected when they purchase an asset. NFT can prove their ownership of it.
In some developing countries, the right of property is not completely protected by the government. But with the Blockchain technology, people can carry out transactions without worrying about losing the rights of property. It protects the right to use, sell and lease of an asset.
So it creates incentives for people carrying out legal economic activities. More and more capital will enter the market and contribute to the development of the country.
Now are you ready to invest in cryptocurrencies?
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